The Bank of Korea's unexpected ratecut clearly underscores headwinds facing Asia's fourth-largest economy and the likelihood of the central bank having to override concerns of growing household debt and a rise in housing prices for another rate reduction in the near future, analysts said Thursday.
"Considering the changes in economic conditions since the last outlook (announcement) in April, we have set the economic growth rate for this year at 2.2 percent and the consumer price inflation at 0.7 percent", said BOK Gov.
The rate cut was largely seen as preemptive, as it came earlier than the US Federal Reserve's anticipated rate cut slated for later this month.
The Bank of Korea said on Thursday its Monetary Policy Board voted to cut its policy rate by a quarter of a percentage point to 1.5 percent.
South Korea's exports have dipped for seven consecutive months as of June amid the prolonged trade dispute between the USA and China, the world's two largest importers of South Korean products.
Economists surveyed by Bloomberg see growth of 2.1%, the lowest since 2009.
Global investment banks have downgraded their forecasts for South Korea's 2019 economic growth, with some expecting the pace to slow below 2 per cent from 2.7 per cent set previous year.
Bank of Korea 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 Indonesian rupiah added 0.3%, ahead of its central bank policy meeting due later.
The central bank had kept the rate frozen since November, when it raised the rate by 25 basis points to 1.75 percent. Dealing a heavier blow to the component sector responsible for a quarter of Korean exports on top of cyclical downturn, Japan has slammed restriction on shipments of key materials that go into chip and display production by removing Korea from fast-track on the items from July 4.
Japan's export curbs was one factor to economic assessment.
No comment on how future interest rate policy will influence won.
There had been speculations that Seoul's monetary policymakers would stick to a wait-and-see approach for the time being and make a move after the Fed's announcement, though some minority opinions had upheld an immediate rate cut.
South Korea's policy rate was already lower than that of the USA, which now sits in a range of 2.25 percent to 2.5 percent.
The decision to cut the key rate also follows a series of downward revisions in the growth outlook for the local economy. A Reuters poll had predicted a move at the August 30 meeting.
Has some policy room left.
"A de facto low ceiling can in fact vary, depending on what it is based on, for instance the possibility of a fund outflow".
Will continue to pay attention to financial stability.
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