The South Korean central bank placed interest rates back at the country’s record low of two years ago, but stayed reserved about venturing into untested levels near zero territory.

The Bank of Korea on Wednesday delivered its second cut of a quarter percentage point in the year to push the policy rate down to 1.25 percent, the historic low touched in July 2016 and kept until the bank followed the global trend of tightening in November 2017. It reversed policy course in July after two hikes as the country showed signs of recession with an economic contraction in the first quarter.

The decision was not unanimous with two dissidents to suggest timidity in the board in testing new lows for interest rates.

Although the rate has revisited the record-low level, the central bank still has “maneuvering room” to cope with financial and economic challenges, BOK Governor Lee Ju-yeol said in a press briefing.

But he too sounded reserved about pushing the rate further down.

“We will decide future moves after studying the effects of the two cuts, developments in external factors, prices and financial market condition,” he said.

The market took his word as a signal of a pause in the easing campaign, at least for this year as there is only one meeting left next month in this year’s calendar.

The three-year government bond yield jumped 3.9 basis points to 1.320 percent. The yield on the five-year bond also gained 3.7 basis points to 1.399 percent, and the 10-year bond 3.1 basis points to 1.530 percent.

He also stayed cautious about employing unorthodox monetary action such as quantitative easing that American, European and Japanese central banks had used against deflationary risks and lengthy economic stagnation.

“Since we still have ammunitions left with rates, we need not resort to additional policy actions,” he said, but added the bank was investigating “other options” in case it runs out of rate cuts or other traditional policy means.

The stock market rose on a number of positive news from home and abroad.

The Kospi on Wednesday ended 0.71 percent higher at 2,082.83, and the Kosdaq 0.80 percent up at 651.96.

On top of little sign of improvement in the economy, performing at its worst in a decade, Korea which so far has only experienced inflation encountered prices in the negative for the first time.

Korea’s consumer price index (CPI) in September was down 0.4 percent on year after testing sub-zero territory in August.

Lee admitted the economy would likely underperform its growth outlook of 2.2 percent this year on “increased downside risks.” He however expected an improvement next year, with overall gains in external trade on increasing demand for chips under favorable market conditions.

“The bank is continuously preparing and monitoring plans for every situation under worsening uncertainties from the external front,” said Lee.

The International Monetary Fund (IMF) became the latest to cut the outlook for the Korean economy. In its global outlook report released on Tuesday, Korea’s growth estimate was downgraded to 2.0 percent from 2.6 percent for this year and to 2.2 percent from 2.8 percent for next year.

The BOK holds the next rate meeting on Nov. 29.

The country’s gross domestic product (GDP) data for the quarter ended September will be out on Oct. 24.

By Lee Ha-yeon

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]