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Wed, February 2, 2022 | 21:14
Policies
BOK gains room for additional rate cut
Posted : 2019-08-01 17:08
Updated : 2019-08-01 17:16
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Bank of Korea Governor Lee Ju-yeol answers reporters' questions at the bank in Seoul, Thursday. Yonhap
Bank of Korea Governor Lee Ju-yeol answers reporters' questions at the bank in Seoul, Thursday. Yonhap

By Lee Kyung-min

The Bank of Korea is expected to again lower its base rate in the latter half of 2019, a measure that can be more easily pursued following the U.S. Federal Reserve's rate cut Wednesday.

The U.S. Federal Reserve's policy-setting Federal Open Market Committee (FOMC) lowered its benchmark rate 25 basis points to a range of 2 percent to 2.25 percent, which the market viewed an insurance policy rather than a recognition of economic weakness.

"The FOMC decision was expected," Bank of Korea Governor Lee Ju-yeol said Thursday.

"But Fed Chairman Jerome Powell's remarks are less accommodative than the market expected. Short-term rate soaring and stock market crashing were reflections of such an expectation," he added.

The Fed's rate, the first in more than a decade, was largely in line with expectations, although some observers had anticipated a 50 basis points cut.

Powell said the cut was simply a "mid-cycle adjustment," and the committee did not see the type of marked economic weakness that would require a longer rate-cutting cycle.

However, Powell also said the Fed will "act as appropriate to sustain the expansion" as it continues to evaluate incoming data, a remark indicative of leaving the door open for a possible further cut.

Lee's more accommodative stance was expressed to lawmakers July 23.

"The BOK can consider additional monetary policy measures if the country's economic condition takes a turn for the worse compounded by macro-economic circumstances on greater downside risks," Lee said in a report submitted to the National Assembly Finance Committee.

"We will maintain an accommodative monetary policy stance while closely monitoring the effect of any rate cut and possible economic recovery."

Lee did note that Japan's export restrictions on key materials needed by Korean companies to produce semiconductors could have much graver consequences than currently anticipated.

"If export restrictions are expanded as a result of Japan removing Korea from its whitelist, the aftereffects will not be minimal," he said.

The impact of the rate cut will have only a limited impact in spurring investment, which has continued to remain stagnant over the past few months due to a mixture of domestic and external woes, he added.

"Compared to the past, the rate cut will have a limited impact, because the current weak investor sentiment stems largely from external shocks including the U.S.-China trade dispute, softening global chip demand and the Korea-Japan trade feud."

From the viewpoint of large conglomerates, the rate cut may not induce the desired effect as their overall dependence on overseas funding dropped after the 2008 global financial crisis.

However, small- and medium-sized enterprises (SMEs) may boost in investment as their borrowing costs will decrease,

The BOK lowered its key rate to 1.5 percent, July 18, a 25 basis points cut from the previous 1.75 percent to pre-emptively counter any fallout from the trade dispute with Japan.


Emaillkm@koreatimes.co.kr Article ListMore articles by this reporter



 
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