By Cynthia Kim and Jihoon Lee
SEOUL (Reuters) -South Korea’s central financial institution reduce benchmark rates of interest for a second straight assembly on Thursday in a shock transfer because the financial system stalled and inflation slowed greater than policymakers predicted.
The Financial institution of Korea (BOK) lowered its benchmark rate of interest by 1 / 4 share level to three.00% at its coverage overview, an consequence solely 4 of 38 economists polled by Reuters foresaw. All others anticipated the financial institution to maintain charges unchanged.
It was the primary back-to-back price reduce since early 2009 as policymakers sought to revive the financial system now that inflation has come underneath management.
South Korea’s financial system barely skirted a technical recession within the third quarter, increasing simply 0.1% after an earlier contraction, as a restoration in non-public consumption slowed and exports stalled.
Though policymakers are involved about international trade stability, with the received Asia’s worst-performing forex this 12 months, officers are more and more anxious about U.S. President-elect Donald Trump’s tariff plans.
The federal government is contemplating drawing up a supplementary price range early subsequent 12 months to counter slumping shopper spending and slowing financial development, native media reported final week.
“There is still some uncertainty about the Trump administration’s policy, so the (dollar-won) exchange rate seems to be under upward pressure,” mentioned Min Ji-hee, an analyst at Mirae Asset Securities. “In this regard, the uncertainty of external factors is likely to ease gradually after Trump’s inauguration.”
The BOK downgraded forecasts for each development and inflation this 12 months.
It reduce 2024 development forecast to 2.2% from 2.4% beforehand. For subsequent 12 months it sees the financial system increasing 1.9%, weaker than its 2.1% outlook earlier than.
It additionally sees shopper inflation at 2.3% for this 12 months, slower than 2.5% forecast beforehand.
South Korea’s policy-sensitive three-year treasury bond futures rose as a lot as 0.23 factors to 106.64 after the speed resolution, whereas the received weakened.
The BOK adopted a neutral-to-dovish stance in the direction of coverage in October, when it made its first rate of interest reduce in additional than 4 years as demand softened.
Governor Rhee Chang-yong holds a information convention at round 0210 GMT, which will likely be livestreamed through YouTube.