S Korea's central bank lowers key interest rate by 25 basis points

11 October 2012 05:24  [Source: ICIS news]

SINGAPORE (ICIS)--South Korea’s central bank said on Wednesday it has lowered its key interest rate by 25 basis points to 2.75% amid concerns of a slowdown in its economy.

The cut announced by the Bank of Korea (BOK) follows a similar 25 basis point reduction in July this year.

South Korea’s export-driven economy has been hit by weak demand from key markets such as the US and the eurozone.

On a year-on-year basis, the country’s exports fell for the third consecutive month in September, preliminary data from the Ministry of Knowledge Economy (MKE) showed.

Its exports slipped by 1.8% year on year to $45.7bn (€35.6bn) in September, while imports fell by 6.1% to $42.5bn, resulting in a trade surplus of $3.2bn, the MKE said.

Overseas shipments of petrochemicals reversed the downward trend, gaining by 2.4% year on year to $4bn in September, while exports of petroleum products surged by 24% to $5.3bn, it added

The slowdown in overseas demand has weighed on domestic production, with the HSBC Purchasing Managers' Index (PMI) falling to a seasonally adjusted 45.7 in September, compared with 47.5 in August this year.

A figure above 50 indicates an expansion, while a figure below 50 represents a contraction.

Both output and new orders fell at marked rates in September, the UK-based banking firm said.

The decline in production was the steepest since January 2009, while new order levels fell to the greatest extent for 43 months, it said.

“True, recent stimulus packages implemented in [South] Korea's main overseas markets will lift demand for Korean goods. But, it takes time for the full benefits to filter through,” HSBC said.

The US introduced a third round of quantitative easing, known as QE3, earlier in September to boost its sluggish economy.

“For now, there is a greater need to support domestic demand within [South] Korea,” HSBC added.

Additional reporting by Surinder Malhi

($1 = €0.78)

By: Nurluqman Suratman

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