The South Korea ETF has traded lower in the wake of an interest-rate cut from the Bank of Korea. The central bank lowered benchmark rates in a surprise bid to boost an economy heavily reliant on exports.
The BOK lowered benchmark rates to 2.25% from 2.5%, its first cut in seven months, citing weaker-than-expected growth in China – South Korea’s largest trading partner, slow growth in Europe and lower consumer price inflation, the Financial Times reports.
“This rate cut means that the Bank of Korea admits that the economy is not as good as they think,” Jun Min-kyoo, of Korean Investment and Securities, said in a BBC article. “Slow economic growth and sluggish exports are critical for the rate decision.”
South Korea’s economy is heavily reliant on exports, which make up almost 50% of GDP. In recent months, Japan’s aggressive monetary policy has greatly depreciated the Japanese yen, increasing Japanese exporters’ competitiveness on the global market.
The yen has depreciated almost 20% against the U.S. dollar since last November. The yen recently broke the psychological $100 barrier. The South Korean won has gained 8% against the U.S. dollar over the past year and appreciated 20% against the Japanese yen in the past seven months. [Japanese Yen ETFs Tumble as Dollar Breaks 100 Yen]
“I see today’s rate cut as a defence against the rising won,” Kim Jong-su, an economist with NH Investment & Securities, said in the BBC article. “You could say that the Bank of Korea has jumped in to participate in the currency wars.”
iShares MSCI South Korea Capped Index Fund
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Max Chen contributed to this article.
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