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Bank of Korea cuts key rate to 4-year low to bolster demand

BOK Governor Lee Ju-yeol (Yonhap)
BOK Governor Lee Ju-yeol (Yonhap)
The Bank of Korea cut its benchmark interest rate to the lowest level since 2010 to bolster demand and price gains in Asia's fourth-largest economy.

Governor Lee Ju-yeol and his board lowered the seven-day repurchase rate to 2 percent from 2.25 percent, the central bank said in a statement in Seoul Wednesday. Twelve of 22 economists surveyed by Bloomberg News forecast the move, while nine projected no change.

The cut is the second in two months and follows calls from Finance Minister Choi Kyung-hwan for the BOK to ensure monetary policy is "in harmony" with government efforts to boost growth. Governor Lee will deliver the bank's latest economic update later today, including any change to its growth and inflation forecasts.

"Political considerations aren't the sole driver for cutting rates this month,"Lee Jae-woo, chief Korea economist at Bank of America Merrill Lynch in Seoul, said before the announcement. "Economic factors by themselves offer sufficient reason for more easing."

The won was at 1,068.13 as of 10:04 a.m. in the day after the rate decision. It's weakened 3.7 percent against the dollar over the past three months.

South Korea's consumer prices rose 1.1 percent in September from a year earlier, the statistics office reported Oct. 1, the least since February and below the central bank's target range of 2.5 percent to 3.5 percent.

Factory output unexpectedly shrank 2.8 percent in August from a year earlier, a Sept. 30 report showed, while data released the next day showed exports jumped 6.8 percent last month after a 0.2 percent drop in August.

Choi has pledged to use 31 trillion won ($29 billion) of stimulus this year and proposed a record 376 trillion won budget for next year in an effort to support growth.

Samsung Electronics Co., the nation's biggest company by sales and market value, reported on Oct. 7 that its operating profit fell 60 percent in the third quarter from a year earlier.

"Our economic outlook isn't bright: households are suffering from high debt, corporate earnings are disappointing and big export markets are still far from full recovery," said Lee Jung-joon, a fixed-income analyst at HMC Investment Securities in Seoul. "South Korea may need more rate cuts to gain meaningful recovery momentum." (Bloomberg)

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