Trade friction between Japan coupled with ongoing US – China tariff disputes has increased the likelihood of further monetary easing in South Korea.
In July 2019, the MPB (Monetary Policy Board) has lowered the base rate by 25bps to 1.5%. However, the financial market is already showing indications to potential cuts as early as August, as well as in either October or November. Consecutive rate cuts have been a very rare event in South Korea, only previously seen during the dire 2008 financial crisis.
Following the move in July, Bank of Korea commented that the primary reason for the cut was to stimulate the economy. “MPB is likely to cut the base rate by 25bps on the 30th of August and depending on the economic climate, additional moves are possible,” commented by an economist at a local brokerage firm. With Japan’s new export restriction measures for South Korea live as of August 28th, the door seems to be wide open for a series of rate reductions this year.