Bank of Korea Stresses Need for Preemptive Action as Economy Slows

South Korea's central bank sees an urgent need to respond to a slowing economy, according to minutes from its November 28 meeting, which resulted in a second consecutive interest rate cut, reports Reuters. The board members emphasized the need for a proactive approach to counteract downward pressure on the economy.

"It is deemed more urgent at this time to respond preemptively to downward pressure on the economy," one member stated. Another member echoed this sentiment, urging for a flexible response to domestic and global uncertainties.

The bank's monetary policy board voted 5-2 to lower interest rates by 25 basis points to 3.00%. This marked the first instance of back-to-back rate cuts since 2009, defying market expectations for a hold.

The dissenting members argued for a more cautious approach, advocating for a thorough assessment of the domestic implications of Donald Trump's US presidential election victory and the subsequent foreign exchange market reaction before implementing any rate changes.

South Korea's economic growth is projected to decelerate to 1.9% in 2025 and 1.8% in 2026, down from 2.2% in 2024, according to the central bank's latest forecasts.

The board members also stressed the importance of coordinated fiscal and monetary policy to effectively address the economic challenges. "As rate cuts alone will be insufficient to control the risks at hand, there is a critical need for timely and flexible policy coordination with fiscal policy," said one member.