South Korea unexpectedly lowers key interest rate
| Seoul
South聽Korea's聽central聽bank聽unexpectedly lowered its key interest rate on Thursday, urgently attempting to guard Asia's fourth-largest economy against Europe's persistent debt woes and slowing growth in China.
The聽Bank聽of聽Korea聽said its seven policymakers cut the benchmark seven-day repurchase rate by a quarter of a percentage point to 3 percent. The decision mirrors similar moves by policymakers in Europe and China but came surprised most market watchers, who forecast a rate freeze.
"We expect the rate cut will help the South Korean economy return to a long-term growth trend," said Kim Choong-soo,聽Bank聽of聽Koreagovernor, at a press conference.
The central聽bank聽said some economic indicators in the U.S. have shown signs of deteriorating and the sluggishness of economic activities in the euro currency area has deepened. Economic growth in South聽Korea聽will be weaker than previously expected as exports and domestic demand, two key growth engines, both remain at a low level.
"Going forward the committee expects the pace of global economic recovery to be more moderate than originally forecast, and judges the downside risks to growth to be intensifying further," the monetary policy committee said in a statement.
South聽Korea's聽government cut the country's 2012 growth outlook to 3.3 percent from 3.7 percent last month, as weakening demand in Europe and China is feared to dent South聽Korea's聽exports.
The聽Bank聽of聽Korea聽is scheduled to release its forecast on the South Korean economy Friday.
The July rate cut was South聽Korea's聽first since February 2009, when the central聽bank聽lowered its policy rate by 50 basis points to a record low of 2 percent. The聽bank聽raised key interest rates in five steps between July 2010 and June 2011 to 3.25 percent.
The聽bank聽had refrained from raising its policy rate for more than a year because of worries about the global economic uncertainty. High inflationary pressure gave the central聽bank聽little room to stimulate the economy through monetary easing.
In June, growth in consumer prices eased to a 32-month low of 2.2 percent, below the聽Bank聽of聽Korea's聽median inflation target of 3 percent. That gave policymakers room to buoy economic growth without worrying about stoking inflation.
The聽Bank聽of聽Korea聽governor said the rate hike will not affect consumer prices this year, and that its impact will be negligible on the next year's consumer price index, a benchmark gauge for inflation.
South聽Korea聽joins global central聽banks聽in monetary easing. Last week, the European Central聽Bank聽cut its key interest rate by a quarter of a percentage point to a record low in an effort to boost its sagging economy and China's central聽bank聽also lowered its key interest rate for a second time in a month.
