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South Korean Won Flat As Central Bank Cuts Interest Rates to Record Low

May 28, 2020 at 12:24 by Andrew Moran

3 Korean coins and 2 banknotesThe South Korean won is trading flat against its currency rivals on Thursday as investors weigh the central bank’s decision to cut interest rates to an all-time low. Policymakers warned that the economic fallout from the coronavirus pandemic would be worse for South Korea than the global financial crisis a decade ago. But while it looks like Seoul has the public health crisis under control, officials have been revising their economic forecasts downward.

On Thursday, the Bank of Korea lowered its benchmark policy rate by 25 basis points to a new record low of 0.5%. This is the second rate cut in 2020, and some analysts are warning that the country could impose another rate cut later this year.

By lowering its borrowing costs, the central bank contends that it can ease volatility in financial markets and inject liquidity into the system. Critics suggest that rate cuts may not be enough to stop the hemorrhaging because the COVID-19 outbreak has affected both supply and demand.

Central bank officials agreed to lower the nation’s annual growth outlook from 2.1% to -0.2%, which would be the steepest decline for the export-oriented country in 22 years when it endured the Asian financial crisis. Seoul did experience a 2008 fourth-quarter contraction, but the economy quickly recovered and was able to weather the Great Recession.

In the first quarter of this year, the South Korean economy tumbled 1.4% as domestic consumption and exports plunged.

Bank of Korea heads also reduced its inflation forecasts from 1% to 0.3%.

Recent data found that consumer confidence rebounded this month from 70.8 to 77.6, according to the central bank. Consumers have raised their expectations for future and current domestic economic conditions, current and future living standards, future household income, and future household spending. May business confidence, however, recorded its fourth consecutive decline to 49 – anything below 50 indicates a contraction.

On Friday, construction output, industrial and manufacturing production, and retail sales data will be released.

The USD/KRW currency pair dipped 0.02% to 1,238.07, from an opening of 1,238.25 at 12:18 GMT on Thursday. The EUR/KRW edged up 0.02% to 1,363.61, from an opening of 1,363.38.

If you have any questions, comments, or opinions regarding the South Korean Won, feel free to post them using the commentary form below.

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