South Korea's central bank on Thursday cut its key interest rate for the first time in three years as the economy struggles with sluggish global growth and with the country is embroiled in a trade spat with Japan.
Bank Indonesia (BI) on July 18 reduced the key lending rate 25 basic points to 5.75 percent, a decision made ahead of an anticipated rate cut by the US Federal Reserve (Fed) later this month. The bank had hiked the rate by 0.25% points in November and last lowered borrowing costs in June 2016.
President Moon Jae-in has stressed unity and wisdom as South Korea seeks to reduce its trade dependence on Japan in the wake of Tokyo's new export restrictions.
South Korea says the Japanese trade curbs could hurt its export-dependent economy and disrupt global supply chains.
The bank's monetary policy board highlighted the need to accommodate growth, noting the country's economic growth is expected to further slow.
"Japan's export regulations were partly reflected in macroeconomic assessment, including growth", the governor said.
Intelligence South Korea shares with Japan includes screening and video information collected by reconnaissance aircraft, and information obtained by intercepting wireless communication originating from North Korean military facilities located between Pyongyang and the military demarcation line inside the Korean demilitarized zone.
Samsung Electronics Co.is exploring all possible means to secure stock piles of Japanese materials in preparation for Tokyo expanding its export restrictions, company sources said Thursday.
Seoul vows to strike back and Japan is feared to come up with more retaliatory steps, which might end up with a trade war between the two countries.
The question of compensation for South Koreans for labor during Japan's 1910-45 occupation of the Korean peninsula has soured the USA allies' relations, which took a turn for the worse this month when Japan restricted exports of high-tech material to South Korea. Both had held off on easing too quickly: South Korea had worries about financial stability due to high levels of household debt, while Indonesia needs higher yields to attract foreign investors to fund a current account deficit.
"Japanese companies would find it hard to restrict exports for an extended period, as Korean companies contribute to a considerable share of their earnings", said Eo Gyu-jin, an analyst at eBEST Investment & Securities.