What Happened: South Korea’s central bank has cut its policy rate by 25 basis points to 1.25 percent, its lowest since June 2016, Yonhap reported Oct. 16. Although the bank didn’t revise its annual gross domestic product (GDP) growth forecast, its governor warned of slower economic growth that may drop below 2 percent for the year.
Why It Matters: South Korea has remained relatively cautious in its rate-cutting policy over fears of fueling capital outflow, currency weakness and a potential property bubble in Seoul. However, continued sluggish growth due to low global demand, a slowdown in China’s economy and a cyclical downturn in the semiconductor industry have forced South Korea to react.
Background: South Korea’s GDP grew at 2.67 percent in 2018, but is expected to slow to 2.55 percent in 2019. Seoul has already downgraded its growth target from 2.6-2.7 percent to 2.4-2.5 percent due to weakening export numbers and in June, its currency hit its lowest level since early 2017.
Expect to see this pretty much everywhere. Most countries have to follow what the Fed does to avoid currency damage. That’s why every time Jerome Powell farts the markets tremble.
They also cut big in July. I remember reading that it was related to easing tensions between the US and North Korea, but that seemed counterintuitive to me. I think it’s just a sign that their economy is slowing down, and has been all year. Now with the fed rate cuts they don’t want to lose their shirts.
Trade dispute with China and the US has a lot to do with most economies in Asia if not the rest of the world. Here in HK we’ve been in a recession since the trade war started, so not surprising with this latest move, as Samsung and other tech products have seen a decline in retail sales here.