Saturday, December 14, 2024

BOK Surprises With Rate Cut as Impact of Trump’s Return Spreads

Must read

(Bloomberg) — The Bank of Korea surprised investors with a back-to-back interest rate cut in the latest policy response linked to Donald Trump’s looming return to the White House.

Most Read from Bloomberg

The central bank ramped up the pace of its policy easing by lowering its seven-day repurchase rate by a quarter-percentage point to 3% just a month after a long-awaited pivot to rate cuts to support the economy.

The BOK cited the likely policies of the incoming US administration as a factor driving heightened uncertainties for the global economy in its post-decision statement. It also lowered its growth forecast for 2025 below 2% and trimmed its projection for this year.

“Our decision can be interpreted as an acceleration of easing to deal with downward economic risks that are growing larger than we expected,” BOK Governor Rhee Chang-yong said at a briefing following the decision. “Among the biggest changes since August is the Red Sweep in the US, which was bigger than we forecast,” he said, referring to a slew of areas won by Trump’s Republican party in the election.

The unexpected rate cut initially pushed down bond yields, nudged up stocks and weakened the currency, before some of those moves were pared as market players started to reflect on the longer-term outlook implied by the move.

Rhee said he would work with the government to reduce volatility in the currency market if needed, while adding that the bank did not target any specific levels.

During the election campaign, Trump vowed to slap higher tariffs on US trading partners, a factor that would hit South Korea’s export-reliant economy. The president-elect has also touched on a potential rollback of subsidies for foreign companies operating on American soil, such as Samsung Electronics Co. and Hyundai Motor Co., adding to the possible hit for South Korean businesses.

“You should see this as a pre-emptive response to an inevitable slump in investment and consumption should the economy chill next year with Trump targeting US trading partners from China to South Korea,” said Lee Seung-suk, a researcher at the Korea Economic Research Institute, following the move.

A rate cut was predicted by only four of 22 economists surveyed by Bloomberg. The other 18 expected the bank to maintain the rate at 3.25% and assess the impact of its October pivot when the BOK trimmed rates for the first time in more than four years.

Latest article