SEOUL, Oct 11 (Askume) – South Korea’s central bank has cut its policy interest rate for the first time in four and a half years to revive economic growth rather than curb inflation, which is currently below its 2% target.
The Bank of Korea (BOK) cut its benchmark interest rate (KROCRT=ECI) by a quarter percentage point to 3.25% in a monetary policy review, a result expected by 34 of 37 economists surveyed by Askume .
GDP contracted in the second quarter, private consumption fell and core inflation remained below the central bank’s 2% target in September.
The bank’s policy has been delayed by concerns about Seoul’s overheated real estate market and rising household debt, but a drop in transaction volumes over the past few weeks has given policymakers some room to focus on boosting economic growth.
Earlier, countries such as Indonesia and the Philippines had eased policies, and the Federal Reserve began the easing cycle by cutting interest rates by half a percentage point last month.
Analysts said the Bank of Korea would be slow to reduce borrowing costs further as control over asset prices and domestic credit growth remain key considerations.
“Although the macroeconomic conditions for a rate cut have become clear, the Bank of Korea is proceeding cautiously for the sake of financial stability, especially due to concerns that interest rates will continue to rise,” said Ho Woi Chen, an analyst at UOB A. The cut could boost the real estate market. Chen believes there will be another rate cut of 25 basis points in the first quarter of next year.
The South Korean dollar rose against the US dollar after the rate announcement, while local bond futures were little changed.
At around 0210 GMT, Governor Ri Chang-yong held a news conference to summarize board members’ three-month interest rate expectations and highlight differences.
