Key Rate Lowered
On June 9, the Bank of Korea cut its key interest rate from 1.5% to 1.25%, an all-time low, for the first time in one year in order to be prepared for the acceleration of the ongoing economic slowdown with the South Korean economy already suffering from a decline in exports and sluggish domestic consumption and impacts of the restructuring of certain sectors predicted to hit the national economy in the near future.
“We are in need of fiscal policy and restructuring, not to mention monetary policy, in order to support an economic recovery,” said Bank of Korea governor Lee Ju-yeol, adding that the South Korean government would be well advised to adopt expansionary fiscal policy including a supplementary budget.
“Early budget execution has been carried out in a large scale and the fiscal side is likely to have a negative effect on economic growth in the second half of this year,” the governor mentioned at a press conference on that day, continuing, “We thought that we had better move first this month in the current situation in which monetary policy, fiscal policy and industrial restructuring should move in tandem.”
He remarked that the South Korean economy will be able to achieve a year-on-year growth rate of 2.9% in the first half of this year, as expected in April, but the second half will be a challenge. “The contraction of international trade is worse than what we thought it would be and some downward risks would emerge once the corporate restructuring process starts in earnest in the near future,” he went on to say.