SEOUL, May 9 (Reuters) - South Korea's central bank cut interest rates for the first time in seven months on Thursday to join the new government's stimulus efforts and to help ease the upward pressure on the won, especially against the yen.
All but one of the seven board members voted to lower the borrowing costs, Bank of Korea Governor Kim Choong-soo told reporters later, adding recent policy easing by other central banks also influenced the board's decision.
The Bank of Korea cut the base rate by 25 basis points to 2.50 percent, a surprise move as 16 out of the 26 analysts surveyed by Reuters had predicted no change in the rate. The remaining 10 saw a cut of 25 basis points.
- Full story
- HIGHLIGHTS from news conference
- Full text of Bank of Korea statements
- Reuters survey: 16 out of 26 analysts forecast the Bank of Korea would hold its base rate steady, while the remaining 10 analysts saw a cut.
KIM SANG-HOON, FIXED-INCOME ANALYST, HANA DAETOO SECURITIES
'There were plenty of rationalisations for those supporting a rate cut and for those supporting a rate freeze during April and May. Today's rate cut will fuel hopes for a further rate cut this year, although I don't see it happening next month.'
RONALD MAN, ECONOMIST, HSBC, HONG KONG
'Following today's surprise decision, markets will now wait to see whether the decision was unanimous, given the very split vote last month. The full benefits of today's move will likely come in the second half of this year, given it takes at least three months for a rate cut to filter through the economy. But with the global economy set to pick up over the year, and the fiscal stimulus package fully passed, there is a risk that the economy overheats towards year-end. As such, we maintain our view that the monetary easing cycle is likely over.'
KIM SU-MAN, FIXED-INCOME STRATEGIST, IBK SECURITIES
'I expect the rate to remain steady for the rest of the year. BOK will wait while watching the effect of the cut for another quarter. But I am not ruling out the possibility that if the economy worsens in the latter half of this year, the central bank can cut the rate again in August or September.'
'If the won-dollar rate goes lower than 1,050, it will harm exporters. But I doubt the central bank will cut interest rates in order to tackle the exchange rate issue.'
JUN MIN-KYOO, ECONOMIST, KOREA INVESTMENT AND SECURITIES
'This rate cut means that the Bank of Korea admits that the economy is not as good as they think.'
'I think there will be two more rate cuts this year. I expect rate cuts in July and September.'
'Slow economic growth and sluggish exports are critical for the rate decision. The won's rise is just one of the factors influencing the Bank of Korea's decision. I think foreign exchange rates are more of an issue that the government should take care of.'
YOON YEO-SAM, FIXED-INCOME ANALYST, DAEWOO SECURITIES
'I don't think the Bank of Korea will cut rates further given that today's decision was made after seven months of contraction (in economic activity).
'I think this rate will stay here without any raise. In addition, even if the won rises further and rapidly, I don't think a monetary policy (change) is needed to address that since the won is not one of the major world currencies.'
- June futures on 3-year treasury bonds were up 0.22 points at 107.22 by 0306 GMT, little changed from levels seen before the news conference.
- The won was little changed at 1,086.7 per dollar versus 1,086.5 at the close of domestic session on Wednesday.
- Seoul stocks were up 0.71 percent at 1,970.42 points, also little changed from levels before the news conference.
(Reporting by Christine Kim, Chookyung Kim, Daum Kim, Narae Kim, Jane Chung, Joyce Lee; Editing by Choonsik Yoo) Keywords: KOREA ECONOMY/RATES
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