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BOK minutes indicate another rate cut in the offing

Finance 17:45 August 06, 2019

By Byun Duk-kun

SEOUL, Aug. 6 (Yonhap) -- The Bank of Korea's latest rate cut will not be enough to support Asia's fourth-largest economy, minutes from the central bank's rate-setting meeting released Tuesday showed, possibly heralding another rate cut in the near future.

The central bank trimmed its policy rate by a quarter percentage point to 1.5 percent last month, in a bid to help the economy chug along in the face of growing uncertainty stemming from the escalating trade war between the United States and China.

"Our economy appears to be continuing a slowdown since last year. While the semiconductor market continues to face adjustments following an unprecedented boom, the drop in exports is spreading to other products amid the actualization of fallout on global trade from the U.S.-China trade dispute," a BOK policy board member was quoted as saying.

The board member insisted the quarter percentage point reduction may not be sufficient to keep Asia's fourth-largest economy growing.

"At this point, a 0.25 percentage point reduction of the key rate alone may not be expected to visibly support economic growth, but it may help buffer an additional economic downturn and a slowdown in price increases that could take place should a rate cut be delayed," the board member said, according to the released minutes.

In this photo, taken July 18, 2019, Bank of Korea Gov. Lee Ju-yeol (C) and other members of the central bank's monetary policy board hold a rate-setting meeting in Seoul in which they voted to slash the key rate to 1.50 percent from 1.75 percent to help support the growth of Asia's fourth-largest economy. (Yonhap)

The local economy unexpectedly contracted 0.4 percent in the first quarter from three months earlier, forcing the central bank to slash its annual growth outlook to 2.2 percent last month, from the 2.5 percent forecast in April.

In the first six months of the year, the country's gross domestic product is estimated to have expanded 1.9 percent from the same period last year, according to the BOK, which expects a 2.4 percent on-year expansion in the second half of the year.

Despite its latest rate cut, the first in over three years, the BOK has been facing growth calls for an additional rate cut amid a steady decline in exports.

The country's exports have dipped for eight consecutive months since December, partly due to the trade dispute between the U.S. and China -- the world's two biggest economies and the largest importers of South Korean goods.

The call for an additional rate cut may have gained more weight after Japan removed the country from its list of trusted trade partners last week, greatly expanding its export curbs on South Korea.

Tokyo has already started enforcing tougher export restrictions on three key materials used in the production of semiconductors and display panels -- key export items for South Korea that together account for more than one quarter of its overall exports.

In the July meeting, another BOK board member underscored the increased downside risks created by the U.S.-China trade dispute, as well as South Korea's own tussle with Japan.

"What is more concerning is that downward risks on the future path to growth have greatly increased due to changes in local and external conditions," the board member said.

"Japan's recent move toward export restrictions may also act as a disturbing factor with a fair amount of significance for the country's production and exports, depending on its future direction," the member was quoted as saying.

Still, the board member who cast the only dissenting vote in the July meeting insisted the policy rate, which then stood at 1.75 percent, may be supportive enough while a rate reduction may lead to a sharp rise in household debt, which in turn could weigh on the local economy down the road.

"In the case of the monetary policy, it still appears to be supportive, considering the affluent liquidity in the market," the board member said.


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