South Korea’s central bank cuts rates as slumping economy slows inflation

SEOUL: South Korea’s central bank cut policy interest rates for the first time in four and a half years, making a shift away from quashing inflation, currently below its 2 per cent target, to focus on reviving growth.
The Bank of Korea (BOK) lowered its benchmark interest rate by a quarter percentage point to 3.25 per cent at its monetary policy review, an outcome expected by 34 of 37 economists polled by Reuters.
Gross domestic product contracted in the second quarter, private consumption is falling and headline inflation in September undershot the bank’s 2 per cent target.
Concerns over Seoul’s hot housing markets and households ramping up debt had been delaying the bank’s policy pivot, but a cooling in transactions in the last few weeks has given policymakers some room to focus on driving growth.
The move follows policy easing by its peers in Indonesia and the Philippines, after the Federal Reserve kicked off its easing cycle with a half-point cut last month.
The Bank of Korea will go slow on any further easing in borrowing costs as restraining property prices and an increase in household debt remain important considerations, analysts say.
“While macroeconomic conditions for a rate cut are becoming more evident, the BOK is proceeding cautiously in consideration of financial stability, particularly on concerns that a rate cut could boost the property market,” said Ho Woei Chen, an analyst at the United Overseas Bank, who sees another 25-basis point cut only in the first quarter of next year.
The won gained against the dollar after the rate announcement, while local bond futures were little changed.
Governor Rhee Chang-yong holds a news conference at around 0210 GMT, where he reveals any dissenters, along with a summary of three-month rate expectations by board members.