The central bank lowered its benchmark seven-day repurchase rate by 25 basis points to 3.25 percent, the first reduction since August 2021. This move ends a prolonged tightening cycle and signals a pivot toward supporting economic growth.
The decision to lower the interest rate appears to be influenced by the U.S. Federal Reserve's recent rate cut of 0.5 percentage points, which has narrowed the interest rate gap between the two countries. Consumer price inflation fell to 1.6 percent in September, dropping below the central bank's 2 percent target.
Previously, the BOK raised interest rates from 0.5 percent to 3.5 percent between August 2021 and January of last year to combat a surge in CPI, which had risen to 6 percent following the spread of COVID-19.
However, with signs of economic sluggishness, the central bank halted rate increases and maintained a steady policy from February 2023.
The BOK emphasized the need for a balanced approach between monetary policy and financial stability measures to maintain market confidence in stabilizing real estate prices and reducing the household debt ratio.
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