The weight of South Korea's sluggish economy finally took its toll on the country's central bank yesterday, as onlookers were surprised by a first interest rate cut since June of last year. With the rate now at a record low 1.25 percent, having been frozen for the past 12 months at 1.5 percent, Bank of Korea Governor Lee Ju-yeol explained that a financial storm is brewing. "The problem is the second half. We believe downside risks will expand in the second half," Lee told reporters.
Analysts had generally expected the bank to stay put for another month while watching developments abroad such as the next interest rate move in the United States.
The governor of the bank also made headlines for his cautious stance on monetary policy in the face of political pressure. Blaming "recent economic conditions at home and abroad," Lee admitted that the central bank is likely to lower its already downward revised 2016 growth forecast of 2.8 percent.
A statement from the bank's monetary policy board elaborated that exports have been struggling at the same time as weak domestic consumption, in addition to low oil prices and other external factors.
The rate cut may particularly ease the burden of indebted South Korean shipbuilding and shipping giants, who have been hit hard by the loss of liquidity amid scarce orders.
The central bank announced separate measures this week aimed at supporting local lenders.