South Korea’s central bank lowered its benchmark base rate for the second time this year, saying it was maintaining an accommodative monetary policy stance due to moderate domestic growth, and low inflation and would judge whether to adjust the degree of monetary policy accommodation while observing the effect of two rate cuts and any changes to economic and financial stability.
As expected, the Bank of Korea (BOK) cut its base rate by another 25 basis points to 1.25 percent and has now cut it by 50 points this year.
South Korea’s economy, closely tied to the health of the global economy due to its exports, has slowed this year due to weaker domestic growth and BOK said the pace of the global economic growth has continued to slow as trade has contracted.
“Going forward, the Board expects domestic economic growth to fall below the July projection, owing chiefly to the continued US-China trade dispute and heightened geopolitical risks,” BOK said.
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In July BOK lowered its 2019 growth forecast to 2.2 percent from 2.5 percent and late last month Governor Lee-Ju-yeol said growth was likely to be lower than this forecast.
A new forecast will be released next month.
South Korea’s economy grew by an annual 2.0 percent in the second quarter of this year, up from 1.7 percent in the first quarter.
Inflation turned negative in September, falling 0.4 percent after a flat reading in August, and BOK said inflation will fall short of the path projected in July and fluctuate for some time around zero and then rise to the 1.0 percent range from next year.
In July BOK forecast inflation would fluctuate below 1.0 percent for some time and then be at the low to mid-1.0 percent level in 2020.