S Korea central bank cuts interest rate for first time in three years

The Bank of Korea, the central bank of the Republic of Korea, on Thursday cut its policy rate for the first time in three years, and shaved this year’s growth forecast to the lowest in a decade.

The BOK delivered the surprise interest rate cut as a brewing dispute with Japan piled more pressure on the trade-dependent economy, reports Reuters.

The lender is not alone in adopting easier monetary policy, taking into account the dovish stance of global central banks and deteriorating economic conditions.

Asia’s fourth-largest economy has stuttered in the past few quarters due to slowing demand and rising risks from the US-China trade war.

BOK Governor Lee Ju-yeol told a news conference the central bank has room to respond to any changes in economic conditions, which analysts took as indicating another policy easing was on the table.

The BOK cut the base rate KROCRT=ECI by 25 basis points to 1.50 per cent sooner than analysts had expected. A Reuters poll had predicted a move at the Aug. 30 meeting.

Treasury bond futures jumped on expectations for another rate cut, although stock and currency traders shrugged off Thursday’s rate decision.

The central bank followed the rate cut by lowering this year’s economic growth forecast to 2.2 per cent, just three months after it cut the projection to 2.5 per cent from 2.6 per cent.

The central bank also trimmed its inflation estimate to 0.7 per cent from 1.1 per cent previously, which was already below its 2.0 per cent target.