South Korea cut its key interest rate to a record low of 1.25 percent, amid stagnating exports and sluggish consumption, in a step that surprised analysts, who expected the central bank to maintain a wait-and-see stance.
The Bank of Korea’s reduction of a quarter of a percent point was the first in a year, and was brought on by a host of factors including low oil prices hitting South Korea’s shipyards, prompting a planned restructure of the indebted companies, with the prospect of job cuts - which is in turn is causing consumption to flag.
"Global trade turned out to be weaker than expected and downside risks are likely to grow in coming months when corporate restructuring gets underway in earnest," the central bank’s governor Lee Ju-Yeol said. "We need to pre-empt negative impact from corporate restructuring".
The bank’s policy committee also said in a statement that the economy is likely to see "modest growth going forward", but warned of expanding "downside risk".
The news of the rate cut came a day after the government and the central bank announced the creation of a $9.5 billion (8.3 billion euros) fund to help cushion the effects of the corporate restructure on the financial market.
Finance minister Yoo Il-Ho said Thursday that the 6 percent year-on-year fall in exports last month put even greater pressure on domestic demand sectors, and that the country’s economy was being dragged down by oversupply, excessive regulation and weak competitiveness.
The first quarter saw growth at 0.5 percent from the previous three months, the lowest since April to June 2014, when South Korea was hit by the MERS epidemic.
jd/uhe (AFP, DPA)