Ho Woei Chen, Economist at UOB Group, reviewed the recent decision by the BoK to cut the interest rate.
Key Quotes
“In line with consensus and our expectation, the Bank of Korea (BOK) cut its benchmark interest rate by 25 bps to 1.25% today”¦ This is the second rate cut this year following one 25 bps cut in July and brings the benchmark rate to match the record low during June 2016-October 2017″.
“The BOK flagged greater concerns on growth as the contraction in trade contributed to the slowdown in global economic growth. The softer domestic inflation thus provided BOK with the room to cut interest rate as headline CPI in Aug and Sep fell into deflation for the first time since 1962. The real interest rate is currently at a much higher level of around 1.67% compared to 2016-2017 when the real interest rate went into negative in Sep 2016″.
“With the US Fed still on track for further interest rate cuts ahead (we expect two more 25 bps rate cuts in the 29/30 Oct and 10/11 Dec FOMC) and various central banks easing their respective monetary policies, there have been calls for the BOK to take more aggressive cuts to bring its interest rate to new lows. While this is possible if the South Korean economy comes under greater downside risks from the protracted US-China trade conflicts, we do not think the BOK will rush into another rate cut on 29 Nov which is the last rate decision this year. The BOK said that it is maintaining an accommodative policy as it monitors the effects of the rate cuts so far”.
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