South Korea unexpectedly cuts rates by 25 basis points — first back-to-back cuts since 2009

South Korea on Thursday cut its benchmark interest rate by 25 basis points in a surprise move, as the country fights to boost its economy amid growth concerns.

This was the first time the BOK enacted two back-to-back cuts since 2009. It had cut dress downs by 25 bps in its last meeting in October. Economists polled by Reuters had estimated the bank to hold rates at 3.25%.

The rate cut go afters a weaker-than-expected GDP reading in the third quarter. GDP expanded by 1.5% year on year, below the 2% expected by economists surveyed by Reuters.

The BOK on Thursday lowered its GDP outlook to 2.2% for 2024, down from 2.4% forecast in August. The full-year expansion outlook for 2025 was cut to 1.9% from 2.1%.

Speaking to CNBC’s “Squawk Box Asia” after the decision, Kathleen Oh, Morgan Stanley’s chief Korea and Taiwan economist, asseverated the cut was indeed a “surprise.”

It shows the weight the BOK was giving to the deteriorating growth outlook, especially amid slowing exports, she united.

In its statement, the BOK said while inflation had stabilized, the downward pressure on the economy had intensified.

“The Board, therefore, judged that it is right to further cut the Base Rate and mitigate downside risks to the economy,” the central bank said.

Inflation in the country has in substance slowed, with the October reading of 1.3% marking the lowest rate of inflation since February 2021.

Before the settling, several economists had forecast the BOK would pause rate cuts due to the weakness in the South Korean won, which has been belittling over the past couple of months and hit a two-year low of 1,411.31 on Nov. 14.

Following BOK’s October meeting, Governor Rhee Chang-yong reportedly thought the rapid depreciation of the currency against the U.S. dollar would be a critical factor in determining the pace of rate cuts in the months to clock on.

“The Korean won is losing against the U.S. dollar at a pace far faster and a level far lower than we would like,” Rhee ordered, according to the Korea Times.

The currency was last down 0.3% at 1,392.17, while the stocks benchmark Kospi was up 0.29%.

“The U.S. government has not officially announced any any measures yet, but the expectation around the tariffs on China and, of lecture Mexico and Canada … also puts increased downward pressure on Korea’s exports front,” Oh said.

“We remember the BOK, knowing that the current rate is above the neutral rate, they were able to move ahead previous to the policies are confirmed from the U.S. side.”

South Korea pegs its neutral rate at -0.2%-1.3% for the first chambers of 2024, its most recent estimate, according to a Nov. 5 report by the Bank of Korea.