Bank of Korea’s policy rate cut reflects growing concerns about slower global economic growth

The Bank of Korea's (BOK's) decision to cut the policy rate by 25 basis points on 16 October reflects growing concerns about the softening global growth outlook and sharp contraction in South Korean exports during recent months.

South Korea's export sector has been hit by a perfect storm during 2019 due to the impact of the US-China trade war on South Korean exports to China's manufacturing sector, as well as the Eurozone manufacturing recession and the slump in global electronics orders.

BOK has now cut policy rates twice this year, joining the growing number of central banks across the Asia-Pacific that have been easing monetary policy. Many APAC central banks have been cutting policy rates as softer world oil prices have reduced inflation pressures and concerns grow among Asian central banks about the weakening global growth outlook. US Fed rate cuts have also opened the door for policy rate cuts by APAC central banks. In addition to the BOK, other APAC central banks that have cut policy rates since May 2019 include the Reserve Bank of Australia (RBA), People's Bank of China, Bank of Thailand, Reserve Bank of New Zealand, Reserve Bank of India, Bangko Sentral ng Pilipinas and Bank Indonesia.

For some central banks, notably the RBA, the brave new world on unconventional monetary policy looms ahead as the room for further policy rate cuts is very limited if economic growth momentum should slow further in 2020.

Posted 21 October 2019 by Rajiv Biswas, Executive Director and Asia-Pacific Chief Economist, S&P Global Market Intelligence