The Bank of Korea lowered the key rate from 1.5 percent to a record low of 1.25 percent on Oct. 16 based on its conclusion that the South Korean economy is losing steam with exports and investments decreasing at the same time. The possibility of deflation also affected its benchmark rate determination after consumer prices fell last month.
South Korea’s exports are continuing to fall this year. According to the central bank, the business survey index fell from 75 points to 71 points in the third quarter of this year. Private economic research institutes are estimating this year’s growth of the South Korean economy at less than 2 percent although the Bank of Korea presented an estimate of 2.2 percent in July. On Oct. 15, the International Monetary Fund (IMF) presented an estimate of 2 percent.
In the meantime, South Korea recently posted a decrease in consumer prices. Last month, the prices fell 0.4 percentage points from a year ago, showing the first decline since records began in 1965.
The benchmark rate determination was affected by external economic uncertainties such as major economies’ slowdown, too. The ongoing trade war between the United States and China brought down their Q2 economic growth rates to 2 percent and 6.2 percent, respectively. The respective figures were 3.1 percent and 6.4 percent in the previous quarter.