Bank of Korea Governor Rhee Chang-yong speaks during a meeting at the central bank's headquarters in Jung District, Seoul, Nov. 28. Joint Press Corps

Korea's central bank slashed its benchmark interest rate for the second consecutive session Thursday, while hinting at possible additional cuts down the road after delivering bleaker growth projections amid slowing exports and uncertainties stemming from the new Donald Trump administration.

In a surprise decision, the monetary policy committee of the Bank of Korea (BOK) cut its key rate by 25 basis points to 3 percent during a rate-setting meeting in Seoul.

It marked the first back-to-back rate reduction since February 2009, when the country was reeling from the aftermath of the global financial crisis the previous year.

Thursday's rate cut came a month after the BOK reduced the rate by a quarter percentage point, marking its first pivot since August 2021, as well as the first rate reduction since May 2020.

Many analysts had expected the BOK to hold the key rate steady in November, as the Korean won has slumped markedly in recent weeks and has stayed around the closely watched level of 1,400 won per dollar, while the country is facing lingering concerns over high household debts.

BOK Governor Rhee Chang-yong said four out of six board members supported the rate cut, while three of the six voiced a need to keep open the possibility of further rate reductions in the next three months.

"We have seen drastic changes after the October meeting. Though we were bracing for uncertainties regarding Donald Trump's election victory, 'the red sweep' (of the U.S. Republican Party) was beyond our expectations," Rhee told reporters.

"Exports have markedly slowed down in the third quarter, and we judged that it was not due to any one-off factor but structural factors, such as heated competition in the global market," he added.

In a statement, the BOK noted that downward pressure on economic growth "has intensified" and that it was "appropriate to further cut the base rate and mitigate downside risks to the economy" in light of stabilizing inflation and a slowdown in household debts despite volatility in the foreign exchange market.

The BOK lowered its outlook for Korea's economic growth in 2025 to 1.9 percent from its earlier projection of 2.1 percent, which comes below the country's potential growth rate of 2 percent and is bleaker than the International Monetary Fund's forecast of a 2 percent expansion.

The central bank also slashed the growth forecast for this year from 2.4 percent to 2.2 percent.

A port in Busan / Yonhap

The gross domestic product (GDP) expanded 0.1 percent in the third quarter from the previous quarter, lower than market expectations.

"Given high uncertainties, there is a high possibility for the BOK to adjust the growth outlook for next year again in February," Rhee said.

The governor noted that the quarter-percentage-point rate reduction is expected to boost economic growth by 0.07 percentage point.

Speaking of the foreign exchange market, Rhee said that Korea has enough foreign reserves and various tools to handle any volatility in the foreign exchange market, vowing to implement market stabilization measures if needed.

"Fortunately, the 'Trump trade' in the market has taken a breather. The pace of the won's weakening is not quite bad compared with other currencies," the governor said, stressing that the focus should not be on the exchange rate of the won itself but the movement in comparison with its peers.

Exports, a key growth engine, rose 4.6 percent from a year earlier to US$57.5 billion in October, marking the 13th straight monthly gain, but it was the smallest increase since March, according to government data.

The government and experts have voiced concerns over a further slowdown in exports, particularly due to the potential impacts of high tariffs and protectionist policies by U.S. President-elect Donald Trump.

As for prices, the BOK lowered its inflation forecasts for 2024 and 2025 by 0.2 percentage point each to 2.3 percent and 1.9 percent, respectively.

Consumer prices, a key gauge of inflation, slowed to the lowest level in 45 months in October by rising 1.3 percent from a year earlier, staying below 2 percent for the second consecutive month. (Yonhap)