Bank of Korea sets the stage for a possible cut in rates

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Bank of Korea sets the stage for a possible cut in rates

A member of the Bank of Korea’s (BOK) policy rate-setting board said Wednesday the central bank should be concerned about low inflation, making more dovish sounds on rates.

“It is the time to worry about extremely low inflation [in South Korea],” BOK board member Cho Dong-chul told reporters said, adding that the BOK must be responsible for price stabilization.

In an April policy rate-setting meeting, the BOK’s seven-member monetary policy committee unanimously decided to hold the policy rate steady at 1.75 percent. It has not moved since the panel raised the rate by a quarter percentage point in November last year.

Yet the BOK slashed this year’s growth forecast to 2.5 percent, raising market speculation that it could cut its key rate this year as exports cool and inflationary pressures remain weak.

Korea’s inflation rate has been far below the 2 percent target set by the BOK. Consumer prices rose 1 percent in 2016, 1.9 percent in 2017 and 1.5 percent in 2018.

Consumer prices moved up 0.6 percent in April from a year earlier. The reading was the lowest for any April since 2015.

Cho also expressed worries that South Korea’s economy could be moving toward the kind of long-term slump seen in Japan in the 1990s.

If consumer prices remain far below the target for a long time, Cho said monetary policies would not be as effective as expected and the nation’s economy could eventually fall into deflation.

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