As widely expected, the Bank of Korea cut its key interest rate by 25 basis points to 3.25 percent, the first cut since August 2021, when Asia’s fourth-largest economy began to recover from the recession caused by the coronavirus pandemic.
Many experts indicated that the central bank would not be able to postpone the interest rate cut for a longer period, especially after inflation fell to 1.6 percent in September, which is below the target rate of 2 percent, while concerns regarding the decline in domestic demand remained, according to Korean Yonhap Agency.
The US Federal Reserve also cut interest rates by half a percentage point last month, allowing room for the Bank of Korea to make its own move.
The Central Bank of Korea has continued to hold the interest rate at 3.5 percent since February of last year, after implementing seven consecutive interest rate increases from April 2022 to January 2023.
So far, the central bank has postponed easing monetary policy due to concerns that a hasty rate cut would increase household debt and threaten financial stability, “while inflation enters a downward cycle.”
Central Bank Governor Ri Chang-yong said rising household debts and rising house prices must be dealt with immediately to ensure financial stability.
Earlier, the central bank also stated that conditions are ripe for a change in monetary policy, although it remains vigilant in the face of rising household loans.
Against the backdrop of a series of measures aimed at reducing household debt, housing prices have recently shown signs of slowing.
The economy is showing signs of improvement thanks to strong exports, but domestic demand remains faltering.
The economy is expected to grow by 2.4 percent this year, slowing from a 2.6 percent increase the previous year and a 4.1 percent increase in 2021.
The bank also lowered its inflation forecast to 2.5 percent for this year, compared to its previous estimate of 2.6 percent.
The central bank expects the country’s exports to rise by 6.9 percent this year, higher than its previous estimate of 5.1 percent, and private spending is likely to rise by 1.4 percent this year, slowing from a previous forecast of a 1.8 percent rise.
#Bank #Korea #lowers #interest #rates #time #August