South Korea cuts base rates by 25bps first time in 12 months

June 10, 2016 (LBO) – South Korea’s central bank yesterday decided to cut the base rate by 25 basis points to 1.25 percent amid risks to growth from domestic and international markets.

Releasing a statement, the Monetary Policy Board said it will ensure the recovery of economic growth continues and consumer price inflation approaches the target level over a medium-term horizon.

The Board added it will closely monitor the possibility of a British exit from the European Union, any changes in the monetary policies of major countries.

“The Board forecasts that, while the global economy will maintain its weak recovery going forward, it will be affected by various factors,” the statement said.

“It includes the monetary policy normalization by the US Federal Reserve, financial and economic conditions in emerging market countries, and international oil price movements.”

The US economy is currently emerging from its temporary slowdown and the improvements in the euro area have continued with the Chinese economy maintaining its moderate growth.

Korean exports have continued their trend of decline and the improvements in domestic demand activities such as consumption have weakened.

The Board forecasts that the domestic economy will sustain its trend of modest growth going forward.

Since May, domestic stock prices have risen after having previously fallen, in reflection of global stock market movements and declined long-term market interest rates.

The Korean won has fluctuated to a large extent against the US dollar, affected mainly by changes in the expectations for a policy rate hike by the US Federal Reserve.

Inflation fell from 1.0 percent to 0.8 percent in May, owing chiefly to a slowdown in the extent of increase in agricultural product prices.

The Board forecasts that consumer prices will continue at a low level, under the influence of the low oil prices.

In the housing market, sales and leasehold deposit prices showed low rates of increase.