SEOUL, South Korea (AP) – South Korea’s central bank on Friday cut its policy interest rate for the first time in more than four years, as concerns about South Korea’s household debt levels were outweighed by pressure to revive the struggling economy.
After a Monetary Policy Committee meeting, the Bank of Korea cut its key interest rate by a quarter of a percentage point to 3.25%, the first step to lower borrowing costs since May 2020, when the economy was weathering the coronavirus pandemic. And so.
The bank raised interest rates by a quarter of a percentage point in August 2021 and then froze them for more than three years due to concerns about inflation due to soaring housing prices and soaring household debt.
The bank said in a statement that the recovery in domestic demand has been slow and the pace of economic growth has stalled. He said there was room for interest rate cuts as inflation is showing signs of stabilizing, the housing market in the Seoul metropolitan area is cooling and household debt growth is slowing.
The Bank of Korea said South Korea’s trade-dependent economy faces increased uncertainty, including the escalation of the Middle East crisis, which could affect fuel prices, exchange rates and utility bills.
“The future path of economic growth is likely to be influenced by the pace of recovery in domestic demand, economic conditions in major countries, and trends in information technology exports,” the bank said.
“Growth in housing prices and household debt in the Tokyo metropolitan area is expected to gradually slow due to the strengthening of macroprudential policies aimed at maintaining financial system stability,” the bank said.
“However, there is still a need to monitor associated risks, such as the impact that lower benchmark interest rates may have on household debt.”
The bank predicts that South Korea’s economic growth rate this year will be 2.4%, up from 2.6% in 2023.
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This article’s headline has been edited to reflect that the central bank has lowered its policy interest rate, rather than raising it.
