The Bank of Korea (BOK) decided to lower interest rates for the second consecutive meeting on November 28th, citing the need for a swift and proactive response to a weakening economy. Meeting minutes released on Tuesday revealed the board members’ concerns and rationale behind the decision.
One board member emphasized the urgency of preemptive action to counteract the downward pressure on the economy. The member stated that relying solely on rate cuts would be inadequate to manage the current risks. Instead, a crucial need exists for well-timed and adaptable policy coordination with fiscal measures.
Echoing these sentiments, another member highlighted the increasing domestic and global uncertainties. They argued that monetary policy should meticulously analyze the nature and consequences of economic shocks to ensure prompt and flexible responses. The BOK’s decision to cut the benchmark interest rate by 25 basis points to 3.00% marked the first back-to-back reduction since 2009. This move defied market expectations, which had anticipated a hold on rates.
However, the decision wasn’t unanimous. Dissenting members argued for a more cautious approach. They advocated for a thorough assessment of the domestic ramifications of Donald Trump’s U.S. presidential election victory and the subsequent foreign exchange market reactions before implementing any rate changes.
This rate cut underscores the BOK’s growing concern over South Korea’s economic outlook. The central bank’s latest projections indicate a slowdown in economic growth to 1.9% in 2025 and 1.8% in 2026, down from 2.2% in 2024.
In conclusion, the Bank of Korea’s decision to implement consecutive interest rate cuts reflects a proactive stance against mounting economic headwinds. The move highlights the central bank’s commitment to stabilizing the economy amidst both domestic and global uncertainties. While some members advocated for a more delayed response, the majority stressed the urgency of preemptive action and the need for coordinated fiscal policies to effectively mitigate the risks. The BOK’s actions signal a clear prioritization of economic stability in the face of challenging economic forecasts.
