Globally, the trend of lowering interest rates has become a prevailing trend, and the Bank of Korea (i.e., the central bank of South Korea) has also followed suit by implementing interest rate cuts. According to reports, on October 11th local time, the Bank of Korea successfully reduced the benchmark interest rate by 0.25 percentage points, adjusting it from the previous 3.5% to 3.25%, which aligns with market expectations. It is noteworthy that this is the first time the Bank of Korea has taken measures to ease monetary policy in the past 38 months.
Following the Federal Reserve of the United States (referred to as "the Fed") having lowered interest rates by 50 basis points and hinting at further rate cuts in the future, market expectations for the Bank of Korea to adopt a more accommodative policy in the coming months have been gradually heating up.
Survey results from earlier indicated that many economists predicted that the Bank of Korea would cut interest rates by 25 basis points to 3.25% during the meeting held this Friday. Given that the inflation rate is below the target and economic activity data shows further slowing economic growth, it is anticipated that the Bank of Korea will officially initiate an easing cycle at the scheduled monetary policy meeting (i.e., October 11th).
Relevant data shows that South Korea's Consumer Price Index (referred to as "CPI") in September fell to its lowest level in three and a half years, dropping below 2% for the first time since the beginning of 2021, providing ample justification for the Bank of Korea to lower interest rates. Data released by the National Statistical Office of South Korea shows that the CPI in South Korea rose by 1.6% year-on-year in September, marking the lowest increase since February 2021. After excluding the more volatile food and energy prices, the core CPI in September rose by 2.0% year-on-year.
Many analysts believe that the Bank of Korea will slow the pace of interest rate cuts because curbing real estate prices and the increase in household debt remain key concerns. Despite the increasingly prominent macroeconomic conditions for rate cuts, considering financial stability, especially worrying that rate cuts might stimulate the real estate market, the Bank of Korea will maintain a prudent attitude.
On October 11th, the South Korean Composite Index opened up by 0.53%, surged briefly, and then experienced a fluctuating correction. In terms of major industry sectors, stocks in construction, retail, electrical appliances, and pharmaceuticals performed relatively well, showing a slight upward trend.
In addition to South Korea, New Zealand also announced a rate cut this week. The Reserve Bank of New Zealand (i.e., the central bank of New Zealand) announced on October 9th that it would lower the benchmark interest rate by 50 basis points to 4.75%. This marks the second time the Reserve Bank of New Zealand has implemented interest rate cuts since August this year.
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