South Korea slashed interest rate by 75bp to bolster markets

Bank of Korea Governor Lee Seong-tae presides
over the Monetary Policy Committee meeting
at the bank in Seoul October 27, 2008.
South Korea's monetary policy board holds
an unscheduled meeting on Monday morning at
which analysts expect it to cut interest rates
and announce plans to buy bonds from local banks
to pump liquidity into the squeezed economy. (Reuters Pictures)


The Bank of Korea slashed interest rates by a record at an emergency board meeting in an attempt to bolster markets as the nation faces its biggest crisis since requiring an International Monetary Fund bailout 10 years ago.

Governor Lee Seong Tae cut the seven-day repurchase rate 75 basis points to 4.25 percent, the central bank said in a statement in Seoul today. The rate cut was larger than expected, according to Reuters. In Seoul, the Kospi rose 0.9% to 947.58 after the rate cut announcement. The bank also broadened the type of bonds it will accept as collateral in money-market operations, giving lenders access to more funds. The central bank said it considered buying up to 10 trillion won, or $6.9 billion, in bonds issued by local commercial banks to provide extra liquidity for the cash-starved banking sector.

What the market needed is stabilization of the currency and a drop in risk premiums paid to investors when local companies raise funds overseas. The interest rate cut doesn't directly cover such issues. Rather, it will trigger a further decline of the won's value against the dollar. According to the Bank of Korea, large cut was called for in order to guard securely against the possibility of a sharp contraction of real economic activity. The Bank of Korea will likely cut rates again at their monthly rate-setting meeting next week.

The South Korea's Government has said its currency reserves of about $240 billion and generally sounder fundamentals mean it is not looking to the IMF for help this time.

Related Posts :

1. 10/24/2008 Market Recap - Global Investors Retreat (Update 2)
2. 10/24/2008 - October Blues
3. Markets are in absolute freefall
4. US Credit Crunch Hits South Korea

Sources :

1. Bloomberg: Bank of Korea Cuts Rate by Record to Bolster Markets (Update3), October 27, 2008
2. Fox Business: Bank Of Korea Cuts Rate By 0.75 Points To 4.25% : Reports, October 27, 2008
3. International Herald Tribune: South Korea cuts key interest rate by 75 basis points, October 27, 2008

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