South Korea's central bank on Thursday cut its key interest rate for the first time in three years as the economy struggles with sluggish global growth and with the country is embroiled in a trade spat with Japan. The Monetary Policy Board chose to cut the base rate unexpectedly by 25 basis points to 1.50 percent, the bank said in a statement on Thursday.
The central bank also trimmed down this year's growth outlook to 2.2 percent from an earlier projection of 2.5 percent in April when it slashed its outlook to 2.5 percent from 2.6 percent three months earlier following a contraction in gross domestic product (GDP) in the first quarter of this year.
"Based on now available information the Board considers that the pace of global economic growth has continued to slow as trade contracted mainly due to the U.S".
South Korea's Supreme Court past year ordered two Japanese companies to compensate the wartime workers in a ruling that Japan said violated worldwide law.
The restrictions affect key materials used in the production of semiconductors and display panels.
The meeting came amid growing concerns in South Korea that Japan's trade curbs, which could possibly be expanded to hundreds of trade items in coming weeks, would rattle its export-dependent economy. The U.S. Federal Reserve's forward guidance on a rate cut is pretty clear, and so the Bank of Korea seems to have made such a decision.
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"In our monetary policy operations, we will work to ensure that stable growth is sustained and inflation converges to its target over a medium-term horizon, while paying close attention to financial stability", Lee said.
Japan has reportedly rebuffed South Korea's proposal to hold another working-level meeting by next Wednesday on Tokyo's export curbs.
South Korea is also bracing for the possibility that Japan will take further steps by removing it from a 27-country "whitelist" receiving preferential treatment in trade.
Seoul and Washington are working on a possible visit to South Korea by U.S. national security adviser John Bolton, a local news outlet reported Thursday. "It wouldn't be ideal to allow the situation to worsen and a lot of effort should be invested to prevent it from happening", he said.
The logo of the Bank of Korea is seen on the top of its building in Seoul, South Korea, March 8, 2016. "Considering the size of trade between South Korea and Japan, industry and business links, if export restrictions become reality and expand in some cases, we can't say their impact on exports and our economy will be small".