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By Cynthia Kim and Jihoon Lee
SEOUL (Reuters) -South Korea’s central financial institution delivered a shock rate of interest reduce on Thursday and signaled extra to return, as financial progress faltered and policymakers turned a cautious eye to commerce dangers from a second Donald Trump presidency.
The Financial institution of Korea reduce benchmark rates of interest for a second straight assembly to three.00%, an end result solely 4 of 38 economists polled by Reuters foresaw. The financial institution’s seven-member board voted five-two for the reduce.
Governor Rhee Chang-yong stated three board members had been open to additional easing within the subsequent three months because the return of former president Trump clouds the outlook for South Korea’s export-reliant economic system.
“Exports competitors with main international locations appears to be like to be intensifying whereas we additionally took observe of uncertainties forward on the commerce surroundings after Trump’s election victory,” Governor Rhee stated in a information convention after the choice.
Thursday’s charge reduce was the primary back-to-back charge reduce since early 2009 as policymakers sought to revive progress now that inflationary pressures appear to have come underneath management.
Asia’s fourth-largest economic system faces dangers of upper tariffs whereas it is largest buying and selling associate China might probably face tariffs of as much as 60%.
South Korea registered a report commerce surplus of $44.4 billion with the U.S. in 2023, greater than that for any of its different buying and selling companions.
For President Yoon Suk Yeol’s authorities, Trump’s election has additionally added urgency to safeguard key progress engines, together with the native chip business.
On Wednesday, the federal government introduced plans to bolster assist for native chipmakers, to assist an business that would face unfavorable insurance policies from the upcoming Trump administration.
“Though there have been two dissenters, the truth that they’d three board members who’re open to near-term cuts meant Rhee virtually signaled extra cuts are on the best way, particularly as he positioned some emphasis on supporting progress,” stated Ahn Jae-kyun, an analyst at Shinhan Securities. He sees the BOK reducing once more within the first quarter.
South Korea’s economic 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.
The federal government is contemplating drawing up a supplementary price range early subsequent yr to counter slumping shopper spending and slowing financial progress, native media reported final week.
Requested if the financial institution was prepared for additional downward stress on the gained, Asia’s worst-performing foreign money this yr, Rhee stated he would work with the federal government to stabilize foreign exchange market as wanted.
Policymakers in New Zealand, Canada and Sweden have additionally lowered their benchmark charges by greater than 100 factors in current months.
The BOK downgraded forecasts for each progress and inflation this yr.
It reduce 2024 progress forecast to 2.2% from 2.4% beforehand. For subsequent yr it sees the economic system increasing 1.9%, weaker than its 2.1% outlook earlier than.
It additionally sees shopper inflation at 2.3% for this yr, slower than 2.5% forecast beforehand.
South Korea’s policy-sensitive three-year treasury bond futures rose as a lot as 0.22 factors to 106.63 after the press convention, whereas the gained weakened.
