South Korea’s central bank yesterday lowered its key interest rate to a record low as it tries to bolster a fragile economic recovery.
The bank also downgraded its growth forecasts for Asia’s fourth-largest economy.
The Bank of Korea trimmed the key rate by a quarter of a percentage point to 2 percent for this month.
It was the second rate cut this year — the central bank lowered lending costs in August after a deadly ferry disaster, the shock of which hurt retail sales and other spending.
It also revised down its growth forecast for South Korea.
It said the economy is likely to expand 3.5 percent this year, not 3.8 percent it forecast three months earlier, citing slower-than-expected improvements in capital expenditure and consumer spending.
Next year, South Korea’s economy is set to grow 3.9 percent, instead of 4 percent.
The growth forecast for next year takes into account the government’s big budget plan which is expected to add 0.2 of a percentage point to the growth, Bank of Korea Governor Lee Ju-yeol said.
Lee said growth momentum is “not sufficient” without the government’s expansionary budget.
Analysts expected the rate cut as South Korean Minister of Finance Choi Kyung-hwan had said the recovery in Asia’s fourth-largest economy was fragile.
The weak yen and a slow recovery of capital spending were also expected to dent the recovery of the export-driven economy.
The central bank head said low inflation gave policymakers room to respond to the poor recovery.
Policymakers also saw weak sentiment among economic players as a risk to the economy.
“The two interest rate cuts in August and this month are expected to significantly help the recovery of growth momentum,” Lee said.
In February 2009, the bank lowered its policy interest rate to 2 percent in the wake of the global financial crisis.
Separately, South Korea’s unemployment rate was unchanged in September, with young people still struggling in a tough job market, government data showed yesterday.
The seasonally adjusted jobless rate stood at 3.5 percent, showing no movement from the August figure, Statistics Korea said.
The unemployment rate for those aged 15 to 29 was 8.5 percent last month, up from 8.4 percent the month before and 7.7 percent July.
Additional reporting by AFP
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