Financial Association News on November 28 (Editor Xiaoxiang) The Bank of Korea announced a more pessimistic economic growth forecast on Thursday and cut interest rates for the second consecutive time. This move came as a big surprise to the vast majority of market participants. Following the central bank's decision, both the South Korean won and government bond yields fell, while the South 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%, contrary to market expectations of maintaining it at 3.25%. Many analysts believe that the unexpected second consecutive interest rate cut by the Bank of Korea may be an early response to the increasing economic and trade concerns following Donald Trump's election as President of the United States.

The Bank of Korea also revised down its economic growth forecast for 2025 to below 2%, which may be a key reason prompting this unexpected interest rate cut. The Bank of Korea's latest forecast predicts a 1.9% increase in the South Korean Consumer Price Index in 2025, down from the 2.1% expected in August; and a 1.9% GDP growth rate in 2025, down from the 2.1% expected in August.

Impacted by the interest rate cut news, the three-year South Korean government bond yield hit a daily low of 2.65%, while the USD/KRW exchange rate briefly rose above the 1396 level. The Korea Composite Index briefly rose by 0.4% during trading, but has since narrowed its gains.

Lee Seung-suk, an economist at the Korea Economic Research Institute, said, "You can view this move as a preemptive measure to deal with the targeting of South Korea and other U.S. trading partners by Trump next year. Once the economy cools, it will inevitably lead to a decline in investment and consumption. The Bank of Korea may also be considering the issue of increasing debt burden on households and businesses. Therefore, this interest rate cut is unexpected."

Of the 22 economists surveyed by the media, only 4 had predicted that the Bank of Korea would cut interest rates today. The other 18 economists expected the bank to maintain rates at 3.25% level and continue evaluating the effects of the interest rate adjustment made in October—when the Bank of Korea lowered rates for the first time in over four years.

Analysts mentioned that while the outcome of the interest rate decision was unexpected, the slowdown in the real estate market, easing inflation pressures, and slowing export growth did provide a foundation for the rate cut this week. Trump's victory also prompted Bank of Korea policymakers to consider how to support South Korea's trade-dependent economy to withstand a potential surge in tariffs after his presidency.

Given the stabilization of inflation, the slowdown in household debt, and the downward pressure on economic growth, the Bank of Korea also considers the rate cut appropriate in its statement. The Bank of Korea stated that this move will "alleviate the risk of economic downturn".

"The information currently available indicates that uncertainties in global economic growth and inflation have increased under the drive of the new U.S. government policies," said the Bank of Korea.

The Bank of Korea also noted the increased volatility of the South Korean won exchange rate and stated that it will closely monitor the movement of the won. The Bank of Korea stated that caution must be exercised regarding the possibility of sharp fluctuations in the exchange rates. Changes in overseas monetary policies and geopolitical risks are factors that may affect the global economy and financial markets in the future.

Following the meeting, Bank of Korea Governor Lee Chang-ryong stated at a press conference that three committee members remain open to further rate cuts in the next three months. He also pointed out the need to expand currency swap agreements with the national retirement fund in response to increased exchange rate volatility.

Nomura Holdings economist Jeong Woo Park stated before the decision, "Since the U.S. presidential election, among the newly emerging factors unfavorable to exports, we expect that Korean policymakers have shifted their focus." Park successfully predicted the rate cut by the Bank of Korea this time, citing "deteriorating economic prospects and easing concerns over financial stability."

However, this rate cut decision actually contradicts the Bank of Korea's consistent stance - that unless an economic crisis occurs, it will not cut rates continuously. This move also highlights the sense of urgency among the Bank of Korea's board members, indicating that if there are more fluctuations in the global economy, the Bank of Korea's policies may become more flexible.

South Korea heavily relies on exports to sustain its economic momentum. Trump's campaign promises include imposing higher tariffs on trade partners and possibly canceling subsidies for foreign companies operating in the U.S., such as South Korea's Samsung Electronics and Hyundai Motor Company.

Analyst Ahn Yea-ha from Kiwoom Securities Co. stated, "Uncertainty surrounding semiconductor export performance is increasing, and factors like Trump's tariff imposition on China after his election may exacerbate the risk of economic downturn."

South Korean public concerns are also growing day by day. According to a survey released by the Bank of Korea this week, consumers' outlook on the economy deteriorated at the fastest pace in over two years in November.