Roundup: S. Korea lowers policy rate amid worry about trade row with Japan

Source: Xinhua| 2019-07-18 11:26:36|Editor: Shi Yinglun
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SEOUL, July 18 (Xinhua) -- South Korea's central bank unexpectedly lowered its policy rate on Thursday amid growing worry about trade row with Japan.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other monetary policy board members cut its benchmark seven-day repurchase rate by 25 basis points to 1.50 percent.

It was not in line with market expectations. According to a Korea Financial Investment Association (KFIA) survey of 200 fixed-income experts, 70 percent predicted a rate on hold.

It marked the first rate cut in around three years since June 2016 when the BOK lowered its target rate by a quarter percentage point to an all-time low of 1.25 percent.

As the South Korean economy recovered, the BOK raised the benchmark rate by 25 basis points to 1.50 percent in November 2017, before hiking the rate further to 1.75 percent in November last year.

The central bank reversed its tightening monetary policy direction this month amid the rising concern about trade friction with Japan.

Japan slapped stricter regulation early this month on its export to South Korea of materials vital to produce memory chips and display panels that influence the manufacturing of smartphones, TVs and other tech products.

Japan's export curbs were forecast to add uncertainties to the already-struggling export of South Korea.

Export, which accounts for about half of the export-driven economy, kept sliding for the seventh consecutive month through June.

The export was already hit by the downturn in business cycle of the global semiconductor industry and the global trade dispute.

The BOK indicated a rate cut in May as one of the seven policy board members claimed a 25-basis point rate cut.

Governor Lee said last month that the rate-setting decision would be made according to the changes in economic situations, opening the door for rate cut.

Expectations ran high for the U.S. Federal Reserve to lower its benchmark rate late this month, reducing burden for the BOK's more accommodative monetary policy.

Outlook for the South Korean economy dimmed further. Earlier this month, South Korea's finance ministry revised down this year's growth forecast for the economy by 0.2 percentage points to a range of 2.4-2.5 percent, citing the external uncertainties.

The country's real gross domestic product (GDP), adjusted for inflation, contracted 0.4 percent in the January-March quarter from the previous quarter.

Goldman Sachs forecast that if South Korea's chip production declines 10 percent owing to Japan's export restriction, the country's GDP could fall 0.4 percent along with the reduction of 10 billion U.S. dollars in current account surplus.

Economic indicators showed a gloomy picture. Industrial production shrank 0.5 percent in May from a month earlier, after growing for the past two months. Facility investment also turned downward in May in three months.

The finance ministry said in a monthly economic assessment report, called Greenbook, that the economy maintained slump both in export and investment.