South Korea's central bank has lowered its benchmark interest rate by 25 basis points to 3.25% on Friday, marking the first cut since the U.S. Federal Reserve initiated its tightening policy in March 2022.
The rate reduction comes after South Korea's inflation rate dropped to its lowest level in over three years, reaching 1.6% in September, well below the BOK’s target of 2%. This shift allowed the central bank to move towards a more accommodative monetary policy.
In August 2021, the BOK began raising interest rates, implementing a series of increases totaling 300 basis points over 16 months. This culminated in a 15-year high of 3.5% in January 2023.
At that time, inflation in South Korea was at 2.6%, but it soared to 6.3% by July 2022, its highest level in over two decades.
Additionally, a decline in housing demand, which had previously been a key concern in preventing rate cuts, has eased, allowing BOK policymakers to adopt a more dovish stance.