South Korea's Central Bank Expected to Slash Interest Rate Amid Slowing Economy

Strategic Insights -

South Korea's economy is showing signs of slowing down rapidly, with exports plummeting 17.4% in December and industrial output plummeting 14.1% in November. The government has revised its growth targets, expecting the economy to expand only 2% this year, down from an estimated 3.7% in 2008. The Bank of Korea (BOK) is expected to follow its aggressive monetary easing policy, possibly cutting the interest rate to 2% in the first half of the year. Economists predict a 0.5% rate cut, with some expecting a 0.25% cut or even a freeze. The BOK has already trimmed the key rate by a record 2.25% since October, and experts believe it will continue to ease monetary policy to mitigate the impact of the global financial turmoil.

Key Takeaways:

  • Economists predict a 0.5% rate cut by the Bank of Korea in January, with 11 out of 16 institutions forecasting a cut.
  • The BOK has already lowered the key rate by a combined 2.25% since October to cushion the local economy against the global financial turmoil.
  • Industrial output plunged 14.1% on-year in November, reflecting the sharp slowdown of the economy.
  • South Korean exports tumbled 17.4% in December from a year earlier, the mainstay of economic growth, amid a global recession.
  • The government expects the country's overseas shipments to grow a mere 1% this year, the slowest pace in eight years.
  • The BOK predicted that the economy will expand just 2% this year, down from an estimated 3.7% advance in 2008.
  • The government is targeting 3% growth in 2009 on the back of an economic stimulus package.
  • President Lee Myung-bak has warned that the Korean economy may shrink in the first half amid the global economic downturn.

Statistics:

  • 11 economists at 16 financial institutions predicted a 0.5% rate cut by the Bank of Korea.
  • Industrial output plunged 14.1% on-year in November, the sharpest fall in history.
  • South Korean exports tumbled 17.4% in December from a year earlier.
  • The BOK has lowered the key rate by a combined 2.25% since October.
  • The government expects the country's overseas shipments to grow a mere 1% this year.
  • The BOK predicted that the economy will expand just 2% this year.

Sources:

  • Asia Pulse
  • Yonhap News Agency
  • Yonhap Infomax (financial news arm of Yonhap News Agency)
  • NH Investment & Securities Co.
  • Woori Investment & Securities Co.