S Korea central bank cuts rate, slashes 2025 growth forecast

SEOUL

South Korea's central bank cut interest rates Thursday in a bid to cushion the export-dependent economy tariff war, as it almost halved its annual growth forecast.

Decision-makers lowered the benchmark interest rate "from the current 2.75 per cent to 2.5 percent" and predicted the economy would expand just 0.8 percent this year, down from the 1.5 percent projected in February.

Asia's fourth-largest economy grew less than expected in the first quarter as the export giant and semiconductor powerhouse reeled from trade tensions and political chaos at home sparked by then-president Yoon Suk Yeol's brief imposition of martial law in December.

The rate cut, which was flagged in April by bank governor Rhee Chang-yong, takes borrowing costs to their lowest level since October 2022.

Rhee told a news conference that the current economic downturn was more severe than the 2008 financial crisis.

"During the global financial crisis, the probability of negative growth was estimated at around five percent. Now, that likelihood has risen to nearly 14 percent on average," said Rhee.

The growth projection also marks the first time in five years that the central bank has estimated less than one percent, which was last seen during the pandemic, and will be a key issue for the country's next president after an election next week.

"Future economic growth trajectory is assessed to be subject to significant uncertainty, stemming from developments in trade negotiations, government stimulus measures, and monetary policies in major economies," the BOK said in a statement.

"Inflationary trends also remain highly uncertain," it added.