The Bank of Korea said its seven policymakers cut the benchmark seven-day repurchase rate by a quarter of a percentage point to 3 percent. The decision mirrors similar moves by policymakers in Europe and China but came surprised most market watchers, who forecast a rate freeze. “We expect the rate cut will help the South Korean economy return to a long-term growth trend,” said Kim Choong-soo, Bank of Korea governor, at a press conference.
The central bank said some economic indicators in the US have shown signs of deteriorating and the sluggishness of economic activities in the euro currency area has deepened. Economic growth in South Korea will be weaker than previously expected as exports and domestic demand, two key growth engines, both remain at a low level. “Going forward the committee expects the pace of global economic recovery to be more moderate than originally forecast, and judges the downside risks to growth to be intensifying further,” the monetary policy committee said in a statement.
South Korea’s government cut the country’s 2012 growth outlook to 3.3 percent from 3.7 percent last month, as weakening demand in Europe and China is feared to dent South Korea’s exports. The Bank of Korea is scheduled to release its forecast on the South Korean economy Friday.