Bank of Korea Expected to Cut Interest Rates by 25 Basis Points Amid Growth Concerns
The Bank of Korea (BOK) is expected to cut its key interest rate by 25 basis points to 2.75% on February 25 to support sluggish economic growth, according to a Reuters poll. With inflation at 2.2% and the won stabilizing, the central bank now has room for easing. South Korea’s economy, heavily reliant on semiconductor exports, faces risks from weak consumer sentiment and potential U.S. trade tariffs.
A majority of economists predict further cuts to 2.50% in Q2 and 2.25% in Q3. Despite BOK’s easing, the U.S. Federal Reserve is expected to make fewer or no cuts. The BOK downgraded its growth forecast due to weaker exports and political uncertainty. Global market downturns add pressure on the central bank to stimulate the economy. Economists expect rates to remain steady at 2.25% in Q4 2025.
Bank of Korea Expected to Cut Interest Rates by 25 Basis Points Amid Growth Concerns
The Bank of Korea (BOK) is anticipated to reduce its key interest rate by 25 basis points on Tuesday to support an economy that saw minimal growth last quarter, according to a recent Reuters poll of economists. The survey also suggests an additional 50 basis points of rate cuts later this year.
Last month, the BOK unexpectedly maintained its policy rate, citing concerns over domestic political instability, which had impacted the national currency. However, with the South Korean won rebounding approximately 2.5% against the U.S. dollar this year and inflation at 2.2% in January—close to the central bank’s medium-term target of 2%—conditions now appear favorable for a rate cut to stimulate economic growth.
Out of 36 economists surveyed between February 14-20, all but one predicted the BOK would lower its base rate to 2.75% on Tuesday.
“We expect a 25-basis-point cut from the BOK, as the central bank acknowledges the growing negative output gap in the economy,” said Stephen Lee, chief economist at Meritz Securities. “As long as foreign exchange volatility remains under control, further rate reductions could follow this year.”
In its most recent policy statement, the BOK revised its economic growth forecast downward, citing weakening exports, declining consumer confidence, and ongoing political uncertainty as key factors weighing on the economy.
South Korea, the fourth-largest economy in Asia, heavily relies on semiconductor exports, particularly to the U.S. However, potential trade tensions—including tariff threats from U.S. President Donald Trump—pose risks to the country’s export sector.
A broader downturn in global markets has also added pressure on the BOK to implement rate cuts. On Thursday, U.S. stocks saw declines, with the Dow dropping 1% and both the S&P 500 and Nasdaq shedding nearly 0.5%.
A significant majority of economists—32 out of 35—expect an additional rate cut to 2.50% in the second quarter, followed by another cut in the third quarter, which would bring the benchmark rate to 2.25% by year-end.
Despite expectations of easing from the BOK, the U.S. Federal Reserve is projected to implement fewer rate cuts or possibly none in the near term. A separate Reuters poll found economists divided on the timing of the next Fed rate cut, with most anticipating a reduction by mid-year, though some foresee a later timeline or no cut at all.
Median forecasts suggest South Korean rates will remain steady at 2.25% in the fourth quarter of 2025, consistent with January’s poll results.
“We anticipate the Fed will make just one rate cut this year, likely in June. While the Fed is holding off as it approaches a neutral stance, the BOK still has room to lower rates further,” said Bum Ki Son, North Asia economist at Barclays.
