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Bank of Korea Maintains 2.5% Rate, Warns of Stimulus Side Effects

Governor Rhee cautioned that further interest rate cuts risk fuelling real estate booms and currency swings following a downgrade to sub-1% GDP growth.

Rhee Chang-yong, Governor of the Bank of Korea, participates in a panel titled “How Should Central Banks Battle High Inflation?” at the 2023 Spring Meetings of the World Bank Group and the International Monetary Fund in Washington, U.S., April 14, 2023. REUTERS/Elizabeth Frantz/File Photo
Bank of Korea Gov. Rhee Chang-yong delivers a speech at a ceremony marking the 75th anniversary of the central bank's founding in Seoul on June 12, 2025, in this photo provided by the bank. (PHOTO NOT FOR SALE) (Yonhap)
This file photo taken May 29, 2025, shows Bank of Korea Gov. Rhee Chang-yong speaking during a press briefing in Seoul. (Yonhap)

Overview

  • The BOK trimmed its benchmark rate to 2.5% on May 29, marking the fourth cut since October and cutting its 2025 GDP forecast from 1.5% to 0.8%.
  • Governor Rhee stressed the urgency of stimulus to support recovery while warning that overreliance on easing could undermine long-term growth potential.
  • He warned that excessive rate cuts could drive a surge in Seoul property prices and amplify foreign exchange volatility as the domestic-U.S. rate gap widens.
  • The central bank will maintain an accommodative stance but hold off on further cuts until concerns over market imbalances subside.
  • President Lee Jae-myung’s administration is drafting a supplementary budget to support livelihoods and spur a broader economic rebound.