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Investing.com -- The Bank of Korea (BoK) has made the decision to reduce the policy rate by 25 basis points to 2.50%. This marks the fourth cut in the last six meetings, a move that was anticipated by all 36 analysts who were surveyed, including our team. The decision was unanimous.
Over the course of the past year, the Bank of Korea has been wary of making more aggressive interest rate cuts despite the economy’s weakness and a significant drop in inflation. The central bank has typically pointed to risks associated with private sector debt as a primary reason for their caution. Yet, the tone of the central bank has notably shifted, indicating that concerns about economic growth are now at the forefront of their considerations.
Capital Economics, a leading economic research consultancy, noted the change in stance. They stated, "The dovish tone adopted by the Bank of Korea today, alongside what we think will be continued weakness of the economy suggest that further interest rate cuts are likely in the coming months."
While the central bank acknowledged existing concerns about household debt growth and a rise in foreign exchange market volatility in the early part of its statement, the focus seemed to have shifted towards worries about the economy.
The Bank of Korea pointed out that growth was “forecast to decline considerably,” a stark contrast to the previous meeting where policymakers simply noted that downside risks had intensified. Furthermore, the BoK has significantly lowered its GDP growth forecast for this year, down to a mere 0.8% from the previous 1.5%.
During the press conference, Governor Rhee gave a clear indication of the bank’s dovish stance. He suggested that future rate cuts could be larger than previously expected, while also noting that the central bank’s actions would depend on incoming data. With the economy currently struggling, it could certainly benefit from lower rates.
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