The Bank of Korea lowered its policy interest rate by 25 basis points to 2.5% on Thursday, marking its fourth rate cut in the ongoing easing cycle amid political instability and external trade pressures.
The cut, widely expected by analysts, brings borrowing costs to their lowest level since August 2022. The central bank cited slowing economic growth and steady inflation as primary factors behind the decision.
South Korea’s economy contracted 0.1% in the first quarter, its first decline since 2020, prompting the bank to slash its full-year GDP forecast for 2025 from 1.5% to 0.8%.
Ongoing political turmoil following the impeachment of former President Yoon Suk Yeol and uncertainty surrounding Trump’s reciprocal tariffs have deepened concerns. A 90-day suspension of the U.S.-imposed tariffs is set to expire July 8, with trade talks still underway.
The central bank signaled further easing may be necessary. “The board will maintain its rate cut stance to mitigate downside risks,” it said.
Markets responded positively: the Kospi index rose 1.25%, while the won weakened to 1383.40 per dollar.
