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Bloomberg
South Korea’s first-ever drop in consumer prices and a relentless decline in exports are adding to the case for the central bank to cut interest rates on Wednesday.
The Bank of Korea (BOK), which lowered its key rate in July and left it unchanged in August, will reduce the seven-day repurchase rate by 25 basis points to 1.25%, matching an all-time low, according to 21 of 25 economists surveyed by Bloomberg. The rest expect the BOK to stand pat.
Central banks around the world are unleashing stimulus to shore up growth as the US-China trade war takes a toll on global demand. Singapore eased monetary policy for the first time since 2016 on Monday joining Australia and India in ramping up stimulus this month, while the Federal Reserve may be gearing up for another rate cut at the end of October.
South Korea’s export-dependent economy has been among the hardest-hit from trade tensions, with weakness in demand contributing to a drop in prices that has spurred concerns over deflation risks.
“The BOK will probably ease as early as possible,†said Jeong Won-il, an economist at Yuanta Securities.
South Korea’s inflation was zero in August and fell to minus 0.4% in September. Officials have downplayed the risk of the economy falling into a prolonged bout of deflation, characterising the recent drop as a statistical blip stemming from higher-than-usual food prices a year earlier.
Nonetheless, consumer prices decreasing in a country that serves as a bellwether for world trade is a warning for other export-driven economies.
BOK Governor Lee Ju-yeol has said repeatedly in the past few weeks that it will be difficult for the economy to achieve 2.2% growth this year, as forecast in July.