Seoul central bank lowers rate as growth forecast cut

The Bank of Korea cut its policy rate for the first time in three years amid escalating trade tensions with Japan and moves by Tokyo to tighten export controls to South Korean firms. (AP)
Updated 18 July 2019

Seoul central bank lowers rate as growth forecast cut

  • The Bank of Korea lowered its key interest rate by a quarter percentage point to 1.5 percent

SEOUL: South Korea’s central bank on Thursday cut its policy rate for the first time in three years to shore up growth threatened by a trade dispute with Japan.

The Bank of Korea lowered its key interest rate by a quarter percentage point to 1.5 percent following a meeting of its monetary policy committee, which also cut its growth forecast for the country’s economy this year from 2.5 percent to 2.2 percent.

The bank cited slowing exports and domestic investment and volatility in financial markets related to the trade war between the US and China and Japanese curbs on certain technology exports to South Korea. The bank had hiked the rate by 0.25 percentage points in November and last lowered borrowing costs in June 2016.

The bank said in a statement it will “carefully monitor developments such as the US-China trade dispute, Japan’s export restrictions, any changes in the economies and monetary policies of major countries ... and geopolitical risks, while examining their effects on domestic growth and inflation.”

Lee Ju-yeol, the bank’s governor, said South Korea’s exports and domestic investment during the first half of the year were more sluggish than expected and that it’s “hard to be optimistic about the (economic) conditions moving forward.”

The rate cut came amid escalating tensions between South Korea and Japan over Tokyo’s move to tighten controls on the exports of photoresists and two other chemicals to South Korean companies that use them to produce semiconductors and display screens for smartphones and TVs.

South Korea says the Japanese trade curbs could hurt its export-dependent economy and disrupt global supply chains. Lee said the bank’s monetary policymakers assessed how the trade dispute could affect growth at the macroeconomic level.

South Korea has accused Japan of weaponizing trade to retaliate against South Korean court rulings calling for Japanese companies to compensate aging South Korean plaintiffs for forced labor during World War II.

Tokyo says the materials affected by the export controls can be sent only to trustworthy trading partners. Without presenting specific examples, it has questioned Seoul’s credibility in controlling the exports of arms and items that can be used both for civilian and military purposes.

South Korea is also bracing for the possibility that Japan will take further steps by removing it from a 27-country “whitelist” receiving preferential treatment in trade.

Its removal from the list would require Japanese companies to apply for case-by-case approvals for exports to South Korea of hundreds of items deemed sensitive, not just the three materials affected by the trade curbs.


Cathay Pacific shelves US dollar bond plans amid Hong Kong unrest

Updated 55 min 42 sec ago

Cathay Pacific shelves US dollar bond plans amid Hong Kong unrest

SINGAPORE: Cathay Pacific Airways has shelved plans for its first US dollar debt deal in 23 years, the airline said on Friday, after sources told Reuters that global investors had questioned the pricing due to civil unrest in Hong Kong.

The airline, the biggest corporate casualty of widespread anti-government protests in the Asian financial hub, on Friday lowered its second-half profit expectations, citing “incredibly challenging” conditions in its home market.

Cathay had started meeting investors in Hong Kong and Singapore on Sept. 24 after it mandated four banks to explore carrying out a US dollar denominated bond, according to a term sheet issued at the time, seen by Reuters.

It would have been the first US dollar debt deal for Cathay since 1996 and had been touted as a landmark transaction for the airline given all of its debt is denominated in Hong Kong dollars.

The issuance was to be unrated, and two sources with knowledge of the matter said that Cathay was willing to pay 200 basis points over the US Treasuries rate to secure three-year or five-year funding, with the size and term of the placement dependent on demand.

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Cathay has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

However, investors demanded a higher price of at least 300 basis points over US Treasuries, which made the deal more expensive for Cathay, said the sources, who were not authorized to speak publicly about the matter. Cathay’s term sheet had said the transaction would be reliant on market conditions. A Cathay spokesman on Friday said the Hong Kong dollar private placement market was providing more funding opportunities and a debt issuance in that market was completed last month. “We will continue to monitor the US dollar bond market in future,” he said in a statement.

Dealogic data showed that Cathay raised $102 million in October and $64 million in May through Hong Kong dollar denominated deals.

The airline has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

Cathay had mandated Bank of America Merrill Lynch, BNP Paribas, Deutsche Bank and HSBC to work on the shelved US dollar bond deal.