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Bank of Korea's Lee Says Fed Cut Eases Monetary Policy Pressure

Bank of Korea's Lee Says Fed Cut Eases Monetary Policy Pressure

(Bloomberg) -- The Federal Reserve’s decision to lower its interest rate eases pressure on the Bank of Korea ahead of its own policy meeting next month, according to Governor Lee Ju-yeol.

Asked how the U.S. move would affect the BOK’s Oct. 16 decision, Lee told reporters that while the overnight decision was as expected in the market, “it’s true that from other countries’ perspective, the Fed’s cut eases pressure in managing monetary policy.”

Most economists see the South Korean central bank easing in October or November to help prop up economic growth, which is slowing. The bank lowered its interest rate in July for the first time in three years, to 1.5%, which is just 25 basis points above a record low. The BOK opted to hold in August, but two dissenting votes indicate another cut may come soon.

Bank of Korea's Lee Says Fed Cut Eases Monetary Policy Pressure

“Lee’s comments can be interpreted as supporting the expectation the BOK will cut rates in October,” Kong Dong-rak, an analyst for Daishin Securities said. “We are sticking to our expectation for a cut.”

South Korea’s economy is projected to expand this year at the slowest pace since the global financial crisis as the U.S.-China trade war drags on. Exports -- a key pillar of Korean economy -- have fallen for nine months in a row, and have in turn hurt corporate investment and hiring. Adding to the woes, Japan -- a key supplier of materials and components -- has recently removed South Korea from its list of trusted trading partners. Inflation fell to zero for the first time ever in August.

Lee added the Fed looked to be open to another cut and that the bank would monitor the situation in the Mideast after weekend attacks on Saudi Arabia’s oil infrastructure.

Lee said after holding rates on Aug. 30 that the BOK still had some room for easing, even though it was hard to say it was sufficient. On Wednesday Shin In-seok, one of the two central bank board members who voted for a 25 basis points cut back then, disagreed, saying the BOK in fact had sufficient room.

--With assistance from Whanwoong Choi.

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jiyeun Lee, Jason Clenfield

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