By Cynthia Kim and Jihoon Lee
SEOUL (Reuters) – South Korea’s central bank cut benchmark interest rates for a second straight meeting on Thursday in a surprise move as the economy stalled and inflation slowed more than policymakers had predicted.
The Bank of Korea (BOK) cut its benchmark interest rate by a quarter percentage point to 3.00% on its policy review, an outcome seen by only four of 38 economists polled by Reuters. All others expect the bank to keep rates unchanged.
It was the first repeated rate cut since early 2009 as policymakers sought to revive the economy now that inflation is under control.
South Korea’s economy barely escaped a technical recession in the third quarter, expanding just 0.1% after an earlier contraction, as a recovery in private consumption slowed and exports stalled.
While policymakers are concerned about foreign exchange stability, with Asia’s worst-performing currency having won this year, officials are worried about US President-elect Donald Trump’s tariff plans.
Local media reported last week that the government is considering preparing a supplementary budget early next year to curb consumer spending and slow economic growth.
“There is still some uncertainty about the Trump administration’s policy, so the (dollar-won) exchange rate appears to be under upward pressure,” said Min Ji-hee, an analyst at Mira Asset Securities. “In this regard, the uncertainty of external factors is likely to gradually decrease after Trump’s inauguration.”
The BOK has cut forecasts for both growth and inflation this year.
It has reduced the growth forecast for 2024 to 2.2% from 2.4% earlier. For next year it sees the economy expanding 1.9%, weaker than its earlier 2.1% outlook.
It also sees consumer inflation at 2.3% for this year, slower than the 2.5% forecast earlier.
South Korea’s policy-sensitive three-year Treasury bond futures rose 0.23 points to 106.64 after the rate decision, while the win weakened.
The BOK adopted a neutral-to-dovish stance on policy in October, when it cut its first interest rate in more than four years as demand softened.
Governor Ri Chang-yong held a news conference at around 0210 GMT, which will be streamed live via YouTube.
