Nov 28 2024: South Korea’s central bank made an unexpected move on Thursday, cutting its benchmark interest rate to 3.00% for the second consecutive meeting, as growth slows and trade risks loom under the possibility of a second Donald Trump presidency. The decision, supported by five of the seven board members, surprised markets, with only 4 of 38 economists predicting the outcome.
Governor Rhee Chang-yong hinted at further easing in the coming months, citing intensifying competition in exports and uncertainties surrounding trade policies under Trump. The Bank of Korea’s (BOK) back-to-back rate cut is its first since 2009, driven by controlled inflation and the need to revive Asia’s fourth-largest economy.
South Korea, heavily reliant on exports, faces potential tariffs of up to 60% on Chinese goods, while its record $44.4 billion U.S. trade surplus raises concerns about future trade policies. In response, the government has pledged increased support for local chipmakers, a key growth sector potentially at risk under new U.S. policies.
The BOK downgraded its 2024 growth forecast to 2.2% from 2.4% and expects 1.9% growth in 2025, citing weaker private consumption and stalled exports. Inflation estimates for 2024 were also reduced to 2.3% from 2.5%.
The South Korean won weakened further, while policy-sensitive three-year treasury bond futures rose following the announcement. Governor Rhee reaffirmed the bank’s readiness to collaborate with the government to stabilize the foreign exchange market amid ongoing economic challenges.
