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South Korea's central bank said on Wednesday it plans to cut its benchmark interest rate further next year due to growing political uncertainties and other downside risks.

In its monetary policy report for 2025, the Bank of Korea (BOK) said it will make additional rate reductions to maintain the moderating pace of growth in inflation, as well as mitigate downside risks to the economy, reports Yonhap news agency.

Future rate decision will account for all factors

'The BOK will take increased political uncertainties, tougher competition (with global rivals) in (the country's) major industries and expected changes in the global trading markets into account when making rate decisions," the BOK said in the report.

The central bank will strengthen its early warning function to avoid any volatility in the financial markets amid uncertainties involving geopolitical risks and economic policies in the new Donald Trump administration, it said. The bank also vowed to implement market stabilisation measures at the right time if needed.

Bank Of Korea slashed policy rate unexpectedly

Last month, the BOK unexpectedly slashed its policy rate for the second time in a row to help prop up the economy. The bank cut its key rate by 25 basis points to 3 percent, marking 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.

BOK cuts 25 BPS after inflation stayed under 2

In October, it cut the rate by 25 basis points to 3.25 per cent, the first pivot in more than three years. Consumer prices, a key gauge of inflation, slowed to the lowest level in 45 months in October by rising 1.3 per cent from a year earlier, staying below 2 percent for the second consecutive month.