BOK hints at 2 more rate cuts with priority on growth this year

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BOK hints at 2 more rate cuts with priority on growth this year

Published: 13 Mar. 2025, 16:10

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

U.S. President Donald Trump signs a document in the Oval Office at the White House in Washington on Feb. 4. [REUTERS/YONHAP]

The Bank of Korea (BOK) will prioritize growth in its monetary policy, the central bank said Thursday, signaling up to two more rate cuts for the year after February’s 25-basis-point reduction.

The BOK's reaffirmation of its dovish stance comes as the tariff policies of U.S. President Donald Trump increasingly weigh on Asia’s fourth-largest economy. The ongoing tariff war could bring down Korea’s GDP growth this year by an additional 0.1 percentage point in the worst-case scenario, the bank warned.

Such assessments were included in its biannual Monetary Policy Report issued on Thursday. The central bank publishes the Monetary Policy Report twice a year — in March and September — to outline its monetary policy direction and the potential implications.

“Going forward, monetary policy should be weighted toward easing downward pressure on the economy, considering that weak growth is expected to persist amid stable inflation conditions,” said Shin Sung-hwan, a member of BOK’s Monetary Policy Board, in a statement. Shin spearheaded the drafting of the latest report.

“But the timing and the pace of additional rate cuts should be decided depending on the economic situation related to household debt, housing prices and foreign exchange rates,” Shin said.

The BOK expected that its 0.75 percentage point reduction in the interest rate so far — which began in October of last year — would increase Korea’s economic growth by 0.17 percentage points this year and by 0.26 percentage points next year.

Bank of Korea Deputy Gov. Park Jong-woo speaks during a press briefing on the Monetary Policy Report at the central bank headquarters in central Seoul on March 13. [BANK OF KOREA]

Washington’s aggressive tariff policies, in particular, were estimated to reduce Korea’s growth by 0.1 percentage point this year and 0.2 percentage points in 2026 in a base case scenario, which has already been incorporated in the updated growth projection the BOK announced last month.

In February, the bank projected economic expansion of 1.5 percent this year, a 0.4 percentage point downgrade from its November projection, and 1.8 percent next year.

In a low estimate assuming that the tariff war further escalates through 2026, GDP growth is expected to further slow by 0.1 percentage points to 1.4 percent this year and by 0.4 percentage points to 1.4 percent in 2026. In an optimistic scenario, growth will increase by 0.1 percentage point this year and 0.3 percentage points next compared to the median estimate.

“The updated growth projection factored in two to three rate cuts this year, including the one delivered in February,” said BOK Deputy Governor Park Jong-woo during a press briefing Thursday, affirming that the central bank is expecting up to two more cuts this year.

BY SHIN HA-NEE [[email protected]]