In an effort to energize a sluggish economy, South Korea’s central bank has trimmed its key interest rate by 25 basis points to 2.75%, marking the lowest level since August 2022. This latest cut, aligned with the expectations set by Reuters-polled economists, marks the third reduction in the last four policy meetings by the Bank of Korea.
The decision comes at a pivotal moment as the nation is enveloped in political disorder following President Yoon Suk Yeol’s impeachment trial, with the Constitutional Court expected to hold its concluding hearing on Tuesday.
Following the announcement, South Korea saw its benchmark Kospi index drop by 0.42%, while the won depreciated 0.13% against the U.S. dollar, currently trading at 1,431.
Compounding the central bank’s dilemma, previous concerns about financial stability, particularly in relation to the housing market and rising household debt, have been overshadowed by the broader economic risk following President Yoon’s erratic martial law stance in December. This political uncertainty has led to a marked decline in both consumer and business confidence.
Moreover, the country’s economic growth has slowed more than anticipated, with GDP growth in the fourth quarter expanding at just 1.2%, the slowest pace in a year and a half. The Bank of Korea has noted significant weaknesses in consumer spending and the construction sector as key contributors to this downturn.
