Following the recent interest-rate cut by the U.S. Federal Reserve, the Bank of Korea (BOK) lowered its policy rate by 25 basis points to 3.25 percent on Oct. 11, marking the first time since May 2020 the central bank has sought to lower borrowing costs. Stabilizing inflation, slower growth in household debt and easing depreciation pressure on the Korean won were cited by the central bank as the main reasons behind the rate cut.
Oxford Economics forecasts a cautious but steady easing cycle and expects the policy rate to drop from its current level of 3.25 percent to 2.25 percent by the end of 2025. Inflation, growth and financial stability — namely housing prices and household debt — will be major factors influencing the BOK’s future policy rate decisions.
“While cooling inflation and weak domestic demand enable the BOK to proceed with more cuts in the following quarters, domestic financial stability remains a concern for the BOK,” stated Oxford Economics.
