Bank of Korea Cuts Benchmark Interest Rate to 3.25% in First Reduction Since 2020

The Monetary Policy Board of the Bank of Korea voted on Friday in Seoul to lower its benchmark seven-day repurchase rate by 25 basis points from a 15-year high of 3.50% to 3.25%, executing the central bank's first rate reduction in four years and five months.

The widely anticipated move formally concludes a prolonged 38-month monetary tightening campaign that began in August 2021, aligning Asia's fourth-largest economy with the global easing cycle led by the U.S. Federal Reserve and European Central Bank.

Historic Pivot Ends 38-Month Tightening Campaign

Policymakers cited clear evidence that domestic price pressures have stabilized, with South Korea's headline consumer price inflation dropping to 1.6% year-on-year in September—dipping below the central bank's medium-term 2.0% target for the first time since early 2021.

The board had previously delayed pivoting due to surging apartment prices in the greater Seoul metropolitan area and rising household mortgage debt, which recently began decelerating after financial regulators implemented stricter macroprudential lending rules in September.

“The decision to lower the base rate reflects our assessment that price stability has firmly consolidated, allowing a slight moderation of policy restrictiveness.” — Rhee Chang-yong, Governor of the Bank of Korea

Balancing Domestic Growth and Household Debt Stability

Governor Rhee Chang-yong Described the rate cut as a 'hawkish cut', revealing that six of the seven board members voted for the 25-basis-point reduction while five members favored maintaining the rate at 3.25% over the next three months to monitor financial stability.

Economists expect the lower borrowing costs to provide much-needed relief to sluggish domestic private consumption and small businesses, even as semiconductor exports continue to underpin South Korea's projected 2.4% GDP expansion for 2024.

Sources

• Bank of Korea
• Ministry of Economy and Finance