Central Banks

Bank of Korea cuts rates in June to record low, sooner than expected

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South Korea's central bank cut its policy rate by 25 basis points to a record-low 1.25 percent on Thursday slightly sooner than expected as inflation has failed to accelerate and exports are far from a rebound.

A Bank of Korea media official announced the monetary policy committee's decision to lower the base rate without elaborating. Governor Lee Ju-yeol is due to hold a news conference from 11:20 a.m. (0220 GMT).

It was the first rate cut since the bank last lowered rates in June 2015.

Just four out of 23 analysts surveyed by Reuters had forecast the central bank would lower the rate, but a majority of those who saw a June hold forecast that rates would be cut in July.

'Bank of Korea under pressure'

Market participants will hone in on the governor's news conference to see whether Thursday's decision was unanimous.

"It will be burdensome to cut rates again this year. Plans from the government for the second half of the year will be eyed, but for now I expect this to be the last rate cut this year," said Lee Sur-bee, a fixed-income analyst at Samsung Securities.

"Many expected the U.S. Federal Reserve to hike rates in June or July but after the May jobs data a June hike now seems impossible. The BOK probably have thought taking action before the Fed's rate hike would be safer."

'South Korean-style QE is more like fiscal policy'

Bond futures jumped sharply while the won erased earlier gains and dropped against the dollar shortly after the decision.

Lower rates have been expected by analysts for a number of reasons as May inflation pulled further away from the central bank's 2 percent target to stand at 0.8 percent. A tumble in exports since January last year has also darkened the outlook for Asia's fourth-largest economy.

As a result, the IMF lowered its 2016 GDP forecast for South Korea to 2.7 percent from 2.9 percent in April while earlier this month the OECD slashed its GDP projection from 3.1 percent to 2.7 percent.

The Bank of Korea is also expected to trim its GDP forecast for this year in its quarterly review in July. It currently stands at 2.8 percent.

Most analysts see just one rate cut to end the current easing cycle if the global economy rebounds next year.

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