South Korea's Central Bank Cuts Borrowing Costs To Aid Sluggish Economy

South Korea’s central bank cut its key interest rate and sharply lowered its growth outlook for 2025.

The Bank of Korea lowered its benchmark interest rate by a quarter percentage point to 2.5%. I Photo: Bank of Korea LinkedIn

The move was made to counter the economic fallout from U.S. President Donald Trump’s tariff hikes and weak domestic demand exacerbated by recent political turmoil, Kim Tong-Hyung reported for the Associated Press (AP).

Following its monetary policy meeting, the Bank of Korea lowered its benchmark interest rate by a quarter percentage point to 2.5%.

This marks the fourth cut since October, when the bank began easing borrowing costs for the first time in years to support a weakening economy. It also slashed its 2025 growth forecast to 0.8%, down from the 1.5% projected in February.

Share prices rose sharply, with the Kospi gaining 1.7%.

Despite some easing in global trade tensions, the global economy is still expected to slow due to the lingering impact of higher tariffs. The bank warned that U.S.-China trade friction and geopolitical uncertainties will continue to weigh on markets.

At home, South Korea’s economy remained sluggish in April after contracting in the first quarter due to weak consumption and business investment. The central bank noted slow job creation in manufacturing and other key sectors.