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Rhee Chang-yong, the governor of the Bank of Korea, chairs a meeting of the Monetary Policy Board on Feb. 25, 2025. (courtesy of the Bank of Korea)

The Bank of Korea (BOK) downgraded its forecast for the country’s economic growth in 2025 to 1.5%. To battle the country’s economic descent, the BOK decided to lower its standard interest rate from 3% to 2.75%. 

According to the BOK’s revised economic outlook published on Tuesday, projected GDP growth for this year has been adjusted downward to 1.5%. This is 0.4 percentage points lower than the 1.9% projection announced in November of last year. The bank maintained its forecast of 1.8% growth in 2026, meaning South Korea’s economic growth is expected to remain in the 1.0%-1.9% range for two consecutive years. 

This is the first time the central bank has adjusted its economic growth projection downward by 0.4 percentage points or more since November 2022. It’s 0.1 percentage points lower than the tentative projection (1.6%-1.7%) the BOK offered last month (Jan. 20). The BOK’s revised growth rate forecast is lower than projections provided by other institutions like the Organisation for Economic Co-operation and Development (2.1%), the IMF (2%), the Ministry of Economy and Finance (1.8%) and the Korea Development Institute (1.6%)

The country’s central bank explained that it adjusted its forecast in light of US tariff policies and the political uncertainty prompted by the Korean president’s declaration of martial law in December. The latest forecast did not reflect the drafting and implementation of a supplementary budget. The BOK predicts that an early supplementary budget between 15 trillion and 20 trillion won (US$10.5 billion-14 billion) will raise the growth rate by around 0.2 percentage points. 

During a press conference on Tuesday, BOK Governor Rhee Chang-yong said, “Trying to solve all economic issues through interest rate policies is not appropriate. In order to see growth beyond 1.5% this year, we need fiscal policy to work in tandem with monetary policy,” repeatedly emphasizing the need for a supplementary budget.  

The bank maintained its outlook for inflation for this year and 2026 at 1.9% each. The forecast suggests that a lagging economy and low demand will offset inflationary pressure, keeping it stable within the target level of under 2%, despite the rising won-dollar exchange rate and oil prices. 

During its meeting on monetary policy on Tuesday, the BOK’s Monetary Policy Board decided to lower the base interest by 25 basis points, from 3.00% to 2.75%. Tuesday’s downgrade marked the third rate cut since the central bank shifted to a policy of monetary easing in October of last year. 

“Although concerns about foreign exchange markets still remain, inflation stabilization has continued along with an ongoing slowdown in household debt, while the growth rate is forecast to decline significantly. The Board, therefore, judged that it is appropriate to further cut the Base Rate and mitigate downward pressure on the economy,” the board said in a statement explaining its decision. 

By Kim Hoe-seung, senior staff writer

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