The Bank of Korea surprisingly cut its benchmark base rate by 25 basis points to 3.0 percent due to growing downside risks to the global economy, mainly from the uncertainty surrounding the euro area's debt crises
South Korea's central bank warned of possible unrest in international financial markets and said economic growth in Korea had weakened more than expected and inflation, which fell to an annual rate of 2.2 percent in June, would remain below the midpoint of the target.
The Bank of Korea had kept rates unchanged at 3.25 percent since June, 2011 and financial markets had widely expected the bank to maintain its rates.
"Going forward the Committee expects the pace of global economic recovery to be more moderate than originally forecast, and judges the downside risks to growth to be intensifying further, due chiefly to the high degree of uncertainty surrounding the euro area fiscal crisis and to the possibilities of international financial market unrest and economic slumps in major countries." the Bank of Korea said in a statement.
It also said economic indicators in the United States had shown signs of
deteriorating and the sluggishness of activity in the euro area to
have deepened along with a slowdown in emerging markets.
"In the financial markets, the Korean won has appreciated substantially against the US dollar with the easing of international financial market unrest, while stock prices and long-term market interest rates have fallen slightly, affected for instance by receding expectations of economic recovery at home and abroad.
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