South Korea unexpectedly lowers key interest rate
South Korea's central bank lowered its benchmark interest rate on Thursday in the hopes of guarding against financial crisis.
South¬†Korea's¬†central¬†bank¬†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¬†Bank¬†of¬†Korea¬†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,¬†Bank¬†of¬†Koreagovernor, at a press conference.
The central¬†bank¬†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¬†Korea¬†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¬†Korea's¬†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¬†Korea's¬†exports.
The¬†Bank¬†of¬†Korea¬†is scheduled to release its forecast on the South Korean economy Friday.
The July rate cut was South¬†Korea's¬†first since February 2009, when the central¬†bank¬†lowered its policy rate by 50 basis points to a record low of 2 percent. The¬†bank¬†raised key interest rates in five steps between July 2010 and June 2011 to 3.25 percent.
The¬†bank¬†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¬†bank¬†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¬†Bank¬†of¬†Korea's¬†median inflation target of 3 percent. That gave policymakers room to buoy economic growth without worrying about stoking inflation.
The¬†Bank¬†of¬†Korea¬†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¬†Korea¬†joins global central¬†banks¬†in monetary easing. Last week, the European Central¬†Bank¬†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¬†bank¬†also lowered its key interest rate for a second time in a month.