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Bank Of Korea Cuts Key Rate By 25 Bps

bankofkorea july18 15oct19 lt

South Korea's central bank lowered its key interest rate as economic growth is set to fall below projection owing to the continued US-China trade disputes and escalating geopolitical risks.

The Monetary Policy Board of the Bank of Korea on Wednesday decided to cut the base rate by 25 basis points to 1.25 percent. The rate matched the record low seen during 2017.

The bank had earlier reduced its rate by 25 basis points in July this year, which was the first reduction since 2016.

The central bank said it is willing to adjust the degree of monetary policy accommodation to ensure economic recovery and to stabilize inflation at the target level.

After consumer price inflation turned negative, the bank said inflation is set to fall short of the path projected in July and fluctuate for some time at around the zero percent level, and then run in the 1 percent range from next year.

Policymakers observed that the pace of domestic economic growth has remained slow, as consumption growth has weakened, while the adjustment in construction investment and the sluggishness in exports and facilities investment have continued.

The bank now expects growth outlook to fall below the July projection on trade wars and geopolitical risks. In July, the bank had forecast 2 percent growth for 2019.

This week, the International Monetary Fund projected the economy to expand 2 percent this year, weaker than its previous forecast of 2.6 percent.

Given the outlook for growth and inflation, further easing early next year is more likely than not, Alex Holmes, an economist at Capital Economics, said.

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