By Cynthia Kim and Jihoon Lee
SEOUL (Reuters) -South Korea’s central bank cut benchmark interest rates for a second straight meeting on Thursday in a surprise move as the economy stalled and inflation slowed more than policymakers predicted.
The Bank of Korea (BOK) lowered its benchmark interest rate by a quarter percentage point to 3.00% at its policy review, an outcome only four of 38 economists polled by Reuters foresaw. All others expected the bank to keep rates unchanged.
It was the first back-to-back rate cut since early 2009 as policymakers sought to revive the economy now that inflation has come under control.
South Korea’s economy barely skirted a technical recession in the third quarter, expanding just 0.1% after an earlier contraction, as a recovery in private consumption slowed and exports stalled.
Although policymakers are concerned about foreign exchange stability, with the won Asia’s worst-performing currency this year, officials are increasingly worried about U.S. President-elect Donald Trump’s tariff plans.
The government is considering drawing up a supplementary budget early next year to counter slumping consumer spending and slowing economic growth, local media reported last week.
“There is still some uncertainty about the Trump administration’s policy, so the (dollar-won) exchange rate seems to be under upward pressure,” said Min Ji-hee, an analyst at Mirae Asset Securities. “In this regard, the uncertainty of external factors is likely to ease gradually after Trump’s inauguration.”
The BOK downgraded forecasts for both growth and inflation this year.
It cut 2024 growth forecast to 2.2% from 2.4% previously. For next year it sees the economy expanding 1.9%, weaker than its 2.1% outlook before.
It also sees consumer inflation at 2.3% for this year, slower than 2.5% forecast previously.
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.
The BOK adopted a neutral-to-dovish stance towards policy in October, when it made its first interest rate cut in more than four years as demand softened.
Governor Rhee Chang-yong holds a news conference at around 0210 GMT, which will be livestreamed via YouTube.
