The Bank of Korea (BOK) published its March 2025 Monetary and Credit Policy Report on Thursday, assessing South Korea’s financial conditions as neutral and signaling that further rate cuts are possible this year. The BOK introduced a new Financial Conditions Index (FCI-G)*, which measures the cumulative impact of financial variables on the GDP gap, alongside the existing FCI. The FCI-G shows that financial conditions are now mildly accommodative, even though the traditional FCI remains slightly tight. The BOK noted that financial easing since the start of the year has been driven by falling short-term rates and a rebound in stock prices.  

The BOK confirmed that it has cut the benchmark rate by 0.75 percentage points since October and suggested the possibility of two to three additional rate cuts in 2025 to counter economic weakness. The report warns that South Korea’s GDP growth could fall to 1.4% this year and next under a worst-case trade war scenario driven by U.S. tariffs. The BOK also flagged risks related to rising household debt and housing market instability, especially after Seoul lifted land transaction restrictions. Household debt-to-GDP has declined to 90.5% but could increase again if financial conditions ease further.