Bank of Korea relies on interest rate cuts to strengthen the economy

The Bank of Korea (BOK) has lowered its key interest rate by 0.25 percentage points to 3.25 percent after the real estate market cooled and inflationary pressures noticeably eased. This decision allows the central bank to focus on supporting economic activities. With this move, the BOK joins a growing number of central banks aiming to stimulate the economic engine through their cycles of monetary easing. Recently, the Federal Reserve reduced its key interest rate by 0.5 percentage points to enable a soft landing for the economy. Ahn Yea-ha, an analyst at Kiwoom Securities, emphasizes that the rate cut responds to sluggish consumer sentiment and illustrates the BOK's ability to implement moderate easing given the limited inflationary pressures. However, he expects the central bank to hold its rates steady in November. Until recently, the rate remained at 3.5 percent to avoid the risk of another real estate bubble. Now, the rate cut reflects concerns about subdued consumer readiness and credit risks within the construction industry. The main criticisms for easing came from some lawmakers who highlighted the financial burdens of variable interest rates for consumers. Economists at Standard Chartered Bank noted that market sentiment is negative, and the Fed's generous rate cut has raised expectations that the BOK might take similar steps. Nevertheless, they consider the risk of overly negative assessments of the South Korean economy to be exaggerated and anticipate cautious rate cuts. Government measures to increase housing supply and tighten lending rules may have contributed to the central bank's composure concerning market stability. Goldman Sachs analysts predict quarterly cuts of 0.25 percentage points each to reach an interest rate of 2.5 percent by the third quarter of the following year. On Friday, BOK Governor Rhee Chang-yong will hold a press conference to address questions about future interest rate directions and to outline expectations for the coming three months.