BOK Gov. Rhee Chang-yong bangs the gavel at a monetary policy board meeting held at the central bank's headquarters in Seoul, Tuesday. (Joint Press Corps-Yonhap)
BOK Gov. Rhee Chang-yong bangs the gavel at a monetary policy board meeting held at the central bank's headquarters in Seoul, Tuesday. (Joint Press Corps-Yonhap)

The Bank of Korea reduced the base rate by 0.25 percentage point Tuesday to spur the country’s sluggish economy.

The BOK’s monetary policy board slashed the policy rate by 0.25 percentage point to 2.75 percent, putting the base rate in the 2 percent range for the first time in over two years.

The board exercised the cut to boost the slow economy, which has been daunted by domestic and global political uncertainties. Over the past months, the country’s domestic consumption has remained weak due to high prices and rates.

Tuesday’s cut comes after a rate freeze in January. Though the market had expected the BOK to execute a third consecutive cut at the January meeting following the reductions in October and November, it kept the rate steady at 3 percent, citing the won’s depreciation against the dollar.

With the US Federal Reserve's target rates between 4.25 and 4.5 percent, the latest rate reduction widens the rate differentials by as much as 1.75 percentage points. The gap will likely remain for a while, as the Fed is expected to hold the rate at 4.25-4.5 percent at its March meeting, as per the CME FedWatch Tool.

The BOK was able to exercise the cut as the value of the Korean won against the dollar has remained relatively stable in recent weeks, compared to how it fluctuated in earlier months following detained President Yoon Suk Yeol’s short-lived declaration of martial law in December.

On Monday, the won’s value against the dollar stood at 1,427.4 won as of daytime closing. It was the first time the won gained value against the dollar to the 1,420 won box in terms of closing price since Dec. 10.


silverstar@heraldcorp.com