Finance Association, November 28 (Editor: Xiaoxiang) The Bank of Korea cut interest rates for the second time in a row while releasing a more pessimistic economic growth forecast on Thursday. The move came as a surprise to the vast majority of market participants. The Korean won and South Korean treasury bond yields both fell after the central bank's decision was issued, while the Korean stock market rose slightly.

The Bank of Korea announced on Thursday that it will cut the benchmark interest rate by 25 basis points to 3%, and the market expects it to remain unchanged at 3.25%. Many analysts said that the Bank of Korea unexpectedly cut interest rates for the second time in a row, which may be an early response to growing economic and trade concerns after Trump was elected President of the United States.

The Bank of Korea also lowered its 2025 economic growth forecast to less than 2% this time, which may be a key reason for it to take this unexpected interest rate cut. The Bank of Korea's latest forecast is that South Korea's CPI will rise 1.9% in 2025. Previously, the forecast for August was 2.1%; the GDP growth rate in 2025 was 1.9%, and the forecast for August was 2.1%.

Affected by news of interest rate cuts, the yield on South Korea's three-year treasury bonds fell to a daily low of 2.65%, while the US dollar rose above the 1,396 line against the Korean won. The Korea Composite Index rose 0.4% during the intraday period, but the increase has now narrowed.

Lee Seung-suk, a researcher at the Korea Institute of Economic Research, said, “You can view this move as a pre-emptive response to Trump targeting US trade partners, including South Korea, next year. Once the economy cools down, investment and consumption will inevitably decline. The Bank of Korea may also have taken into account the increasing debt burden on households and businesses. So this is an unexpected interest rate cut.”

Of the 22 economists surveyed by the media, only 4 had previously predicted that the Bank of Korea would cut interest rates today. Eighteen other economists expect the bank to keep interest rates at 3.25% and continue to assess the impact of the October interest rate adjustment — when the Bank of Korea cut interest rates for the first time in more than four years.

Analysts said that although the results of the interest rate decision were surprising, the slowdown in the real estate market, the cooling of inflationary pressure, and the slowing pace of export growth have indeed laid the foundation for this week's interest rate cuts. Trump's victory has also prompted Bank of Korea policymakers to consider how to support South Korea's trade-dependent economy in order to counter surging tariffs that may rise after he comes to power.

In view of stabilizing inflation, slowing household debt, and downward pressure on economic growth, the Bank of Korea also believes in a statement that it is appropriate to cut interest rates. The Bank of Korea said the move would “mitigate downside risks to the economy.”

“The information currently available shows that global economic growth and inflation are facing increased uncertainty, driven by the new US administration's policies,” the Bank of Korea said.

The Bank of Korea has also noticed increased fluctuations in the Korean won exchange rate and said it will closely monitor the trend of the won. The Bank of Korea said it must be cautious about the possibility of sharp exchange rate fluctuations. Changes in foreign monetary policy and geopolitical risks are factors that may affect the global economy and financial markets in the future.

Bank of Korea Governor Lee Chang-yong said at a press conference after the meeting that the three committee members are open to continuing to cut interest rates over the next three months. He also pointed out that as foreign exchange volatility increases, the currency swap agreement with the National Pension Fund needs to be expanded.

Nomura Holdings economist Jeong Woo Park said before the resolution, “Since the US presidential election, we expect South Korean policymakers to shift their focus among emerging factors that are unfavorable to exports.” Park successfully predicted the Bank of Korea's interest rate cut this time on the grounds that “economic prospects have deteriorated and concerns about financial stability have eased.”

However, this decision to cut interest rates actually goes against the Bank of Korea's previous consistent position — that is, it will not cut interest rates continuously unless there is an economic crisis. The move also highlights the sense of urgency of the members of the Bank of Korea's board of directors, and indicates that if the global economy experiences more fluctuations, the Bank of Korea's policies may become more flexible.

South Korea relies heavily on exports to maintain its economic momentum. Trump's campaign promises include imposing higher tariffs on trading partners and the possibility of removing subsidies to foreign companies operating in the US, such as South Korea's Samsung Electronics and Hyundai Motor Company.

Ahn Yea-ha, an analyst at Kiwoom Securities Co. said, “Uncertainty surrounding semiconductor export performance is rising, and factors such as imposing tariffs on China after Trump's election may increase the risk of economic downturn.”

The concerns of South Koreans are also growing day by day. According to a survey released by the Bank of Korea this week, consumer outlook for the economy deteriorated at the fastest rate in more than two years in November.