ZCZC
BCN-21
SKOREA-ECONOMY-BANKING
S. Korea cuts interest rate again as Japan trade row rumbles
SEOUL, Oct 16, 2019 (BSS/AFP) – South Korea’s central bank on Wednesday
cut its key interest rate to the lowest point in two years in an effort to
prop up its slowing economy as it is hit by a trade spat with Japan.
The move comes as President Moon Jae-in battles to kickstart inflation —
after prices fell for the first time last month — and boost the stuttering
economy, with parliamentary elections due in six months.
It also makes the Bank of Korea the latest central bank to slash rates
around the world as officials try to prop up their economies in the face of a
global slowdown.
The BoK lowered its key rate to 1.25 percent from 1.5 percent, citing
contraction of global trade and “sluggishness in exports and facilities
investment”.
Borrowing costs are now level with their previous record low, which was
seen between June 2016 and November 2017. The won fell 0.2 percent against
the dollar in afternoon trade.
“As it is expected that domestic economic growth will be moderate and it
is forecast that inflationary pressures on the demand side will remain at a
low level, the Board will maintain its accommodative monetary policy stance,”
said the central bank in a statement.
The rate cut comes as the World’s 11th largest economy struggles from a
prolonged trade row between the US and China as well as Seoul’s standoff with
Tokyo originating from historical dispute.
The two neighbours have been embroiled in a dispute since July, when Japan
tightened export controls on three chemicals essential to key products of
South Korean tech companies such as Samsung.
While both are key US allies in the region, relations between the two
remain heavily affected by Japan’s expansionism in the first half of the 20th
century, including its colonisation of the peninsula.
Consumer price inflation is expected to hover around zero “for some time”
before rising to the one percent range from next year, the central bank said,
far short of its target of two percent.
Analysts warn that South Korea may be entering deflation territory after
prices dropped 0.4 percent on-year in September, the first negative reading
on record.
The BoK said economic growth is expected to “fall below” the 2.2 percent
projection made in July — the downgrade from an earlier projection of 2.5
percent.
GDP grew 2.7 percent in 2018, the weakest pace in six years.
BSS/AFP/HR/1045