Bank of Korea cuts rates, keeps door open for more as economy loses steam

South Korea’s central bank on Wednesday cut its policy rate for the second time this year in response to the threat of deflation as consumer prices posted their first decline in modern history. (Shutterstock)
Updated 16 October 2019

Bank of Korea cuts rates, keeps door open for more as economy loses steam

  • Rate cuts follow South Korea’s tumbling economic growth, due to its heavy reliance on exports

SEOUL: South Korea’s central bank cut its policy interest rate on Wednesday, as expected, and left the door open for further easing although a split vote on the move suggested the next reduction may not
be imminent.

The Bank of Korea’s monetary policy board trimmed the base rate by 25 basis points to 1.25 percent in a 5-2 vote, an indication the call for looser settings was not as broad as some analysts had expected.

Government bond prices fell across the board as investors tempered their rate cut views, with yields rising by around
5 basis points.

“There is still room for us to respond to changing financial and economic conditions,” BOK Governor Lee Ju-yeol told a news conference, adding global
uncertainties remained high despite some signs of hope in the world economy.

He said Asia’s fourth-largest economy would likely miss the central bank’s latest growth forecast of 2.2 percent this year and that the central bank would release new projections when it updates its forecasts in November.

The rate cut follows a July easing and was in line with forecasts in a Reuters survey of 31 analysts. The new rate matches a record low set in late 2017.

The BOK’s move comes amid a wave of monetary easing globally, including by the US Federal Reserve, as the world economy loses steam. The Fed is expected to deliver its third rate cut this year in months ahead.

Analysts said Governor Lee’s comments during the news conference were supportive of their expectations that another BOK rate cut was on the table, most likely in early 2020, unless the economy shows firmer signs
of picking up.

However, analysts were surprised by two dissenting voters on the board, which suggested a more cautious outlook by the bank on further cuts than markets had been expecting.

“I expected there would be one dissenter, and so the result indicates the Bank of Korea may wait until it sees a further worsening in the economic indicators,” said Park Sung-woo, fixed-income analyst at
DB Financial Investment.

South Korea’s economic growth has tumbled in recent quarters, hit by cooling global demand and the prolonged US-China tariff war, due to its heavy reliance on the export of chips, cars and ships.

Global investment banks have slashed their 2019 economic growth forecasts for Asia’s fourth-largest economy to as low as 1.6 percent, compared with the central bank’s 2.2 percent projection from actual growth of 2.7 percent last year.

In its regular update on the global economic outlook released late on Tuesday, the International Monetary Fund slashed South Korea’s 2019 and 2020 economic growth forecasts by 0.6 of a percentage point each to 2.0 percent and
2.2 percent, respectively.

The economy grew just 1.9 percent in the first half of this year from a year earlier, down sharply from a 2.5 percent gain in the second half of last year and a 2.8 percent rise in the preceding six-month period, central bank data shows.

The historically robust economy now faces the serious threat of deflation as consumer prices in September posted their first annual decline in the country’s modern history.

Underlining these deflationary pressures, central bank data on Wednesday showed import prices fell in September for a fourth consecutive month from a year earlier, the longest losing streak since late 2016.

Signs of progress in US-China trade negotiations have provided some cause for optimism in South Korea’s economy but
uncertainties over the trade war are still high and exports have yet to show firm evidence of bottoming out.

The central bank next reviews policy on Nov. 29, which will be the last meeting for the year.

Philippine jobless rate hits record 17.7% in April due to pandemic

Updated 59 min 44 sec ago

Philippine jobless rate hits record 17.7% in April due to pandemic

  • The Philippines is facing its biggest economic contraction in more than three decades
  • April’s 17.7 percent unemployment rate equivalent to 7.3 million people without jobs

MANILA: The Philippines’ unemployment rate surged to a record 17.7 percent in April, the statistics agency said on Friday, as millions lost their jobs due to a pandemic-induced lockdown that battered the economy.
The Philippines, which before the pandemic was one of Asia’s fastest growing economies, is facing its biggest contraction in more than three decades after the new coronavirus shuttered businesses and crushed domestic demand.
April’s unemployment rate, which is 7.3 million people without jobs, compares with 5.3 percent in January and 5.1 percent in April last year.
“We should not lose sight of the fact that this loss in employment is really temporary,” Economic Planning Undersecretary Rosemarie Edillon said in an online news conference.
The lockdown in the capital, Manila, which was one of the world’s longest and strictest, was relaxed as of June 1 to allow much-needed business activity to resume and soften the economic blow of the coronavirus, which has infected more than 20,000 in the country.