South Korean Base Rate Cut 50 Basis Points to Record Low

February 12, 2009

The Bank of Korea lowered its base rate for the sixth time since October 9th to 2.0%.  There was a similar-sized cut on January 9th, reductions of 25 bps each on November 11th and October 9th, one of 75 bps on October 27th and another of 100 bps on December 11th. Altogether, rate cuts have cumulated to 325 basis points. The new rate level is 125 basis points below its previous cyclical low in 2004-5 of 3.25%, and a statement released on the central bank’s website indicated that easing is not through by saying officials will continue to do “what is needed to improve liquidity conditions and to ward off the risk of severe slowdown in economic activity.”  Officials later dismissed a notion of concern about falling into a liquidity trap yet.

The statement speaks of rapidly declining exports, slower domestic demand growth, falling real estate values, and on-going deceleration of goods  and service price inflation. Tight credit standards have been observed, and officials also noted a comparatively steady won and stock market. The top priority therefore remains a “greatly deepened growth risk.”

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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