In an unexpected move, the South Korean central bank went for back-to-back cuts on its benchmark interest rates, a trend last seen in early 2009, as an attempt to stimulate an economy that seems to be on the brink of stagnant growth and diminishing inflation.
This maneuver from the Bank of Korea (BOK) lowers its principal interest rate by 25 basis points to 3.00%, a development that only a minority of economists, 4 out of 38 surveyed by Reuters, anticipated.
The fading inflation figures have turned into the primary concern of the policymakers, prompting this response. The third quarter saw South Korea scraping past a technical recession with the economy expanding by an insignificant 0.1%. This came in light of a sluggish recovery in consumer spending and a halt in exports.
Concerning the falling Korean won, Asia’s most underperforming currency for the year, the policymakers are increasingly worried about the tariff plans of the incoming U.S. administration. These concerns are forcing the Korean government to contemplate building an early supplementary budget next year to combat dwindling consumer spending and slow economic growth, as per local media.
BOK also revised its expectations for growth and inflation for the coming year. It is forecasting a 2024 growth rate of 2.2% down from its earlier projection of 2.4%. Furthermore, they expect the economy to expand 1.9% next year, a rate slacker than its earlier 2.1% projection. There is also an expectation of consumer inflation to be 2.3% this year, a rate slower than the 2.5% initially predicted.
