Bank of Korea Cuts Interest Rate to Support Economy Ahead of Elections

The Bank of Korea announced on Thursday a 0.25% cut in its key interest rate to 2.5%, a move aimed at supporting the slowing economy, just five days before the presidential election scheduled for June 3.

This is the fourth cut since October 2024, when the bank began its first monetary easing cycle since 2021.

The decision comes amid weak domestic demand, a 0.2% contraction in GDP in the first quarter of 2025, and concerns about the impact of new US tariffs.

The bank explained that the decision came despite continued concerns about household debt and foreign exchange market volatility, noting that economic growth will slow significantly, necessitating a looser monetary policy. The bank lowered its growth forecast for 2025 from 1.5% to 0.8%.

The economy has also been affected by the political crisis following a failed attempt by former President Yoon. Seok-yeol imposed martial law, leading to a decline in consumer spending and his dismissal last month.

At the same time, trade negotiations between Seoul and Washington over tariffs continue, with efforts to reach an agreement before July 8.

The recent stability of the Korean currency has given the bank room to make a decision to cut interest rates.