Bank of Korea unexpectedly cuts rates for second straight meeting

SEOUL (Reuters) – South Korea’s central bank unexpectedly cut interest rates by 25 basis points to 3.00% on Thursday, delivering its first back-to-back cuts since the global financial crisis of 2008-2009.

MARKET REACTION:

South Korea’s policy-sensitive three-year treasury bond futures rose as much as 0.23 points to 106.64 after the rate decision, while the won weakened.

COMMENTS:

PAIK YOON-MIN, FIXED INCOME ANALYST, KYOBO SECURITIES

“Bank of Korea also recognised that the economy is bad.The rate cut now is about responding to the economic slowdown, and has an aspect of normalising the level of interest rates that were too high in relation to prices and employment, so we expect a continued gradual reduction in rates to be maintained next year.”

CHO YONG-GU, ECONOMIST, SHINYOUNG SECURITIES

“This is a surprise in terms of consensus, and it’s not a surprise in terms of reflecting market interest rates, which have come down by almost 50 bps in the last one or two weeks.

It seems to reflect the impact of the U.S. presidential election. And the economic conditions are worse than expected. I think the government wanted it a lot as well.

Next (LON:NXT) year, I think the rate may go down to 2.5%. But we will have to watch the governor’s remarks on how important he views the currency exchange rate and other factors.” MIN JI-HEE, RATES ANALYST, MIRAE ASSET SECURITIES

“Basically, it reflects a lot of concerns about slowing growth. There is still some uncertainty about the Trump administration’s policy, so the (dollar/won) exchange rate seems to be under upward pressure. In this regard, the uncertainty of external factors is likely to ease gradually after Trump’s inauguration.”