South Korea's central bank unexpectedly cut interest rates to a record low on Thursday, pointing to the risk of economic growth blowing off course as exports slow and domestic demand remains weak. The rate cut, which came after the US Federal Reserve increased rates on Wednesday, sent local government bond futures soaring and helped stock prices recoup early losses.
The Bank of Korea's seven-member monetary policy committee cut the overnight call rate target by a quarter of a percentage point to 3.25 percent, the fourth cut since a series of cuts started in May last year.
"Private consumption and facilities investment have remained sluggish and both exports and construction investment show a slowdown in the pace of their expansion to some degree. This is giving rise to concern that the downside risk to the growth of the real economy may be increasing," the bank's statement said.
Bank of Korea Governor Park Seung told a news conference the focus in its policy had now tilted toward economic growth from inflation, saying recent falls in oil prices and currency movements were helping dampen domestic inflationary pressures.
Economists said the decision would help support government measures aimed at boosting the sluggish economy, although some felt the hand of the finance ministry had also been behind the surprise cut.
"The central bank undermined its independence from the government with this decision. It has not been sending consistent signals to the market," said Lim Ji-won, an economist at J.P. Morgan.