The Bank of Korea unexpectedly cut borrowing costs for the first time in more than three years and Australia reported a decline in employment as Europe’s debt crisis damps growth in Asia.
Governor Kim Choong Soo and his board lowered the benchmark seven-day repurchase rate by a quarter percentage point to 3 percent, the first cut since February 2009, the central bank said in a statement in Seoul today. In Australia, the number of people employed fell by 27,000 in June, the statistics bureau said in Sydney.
The sixth straight daily decline in Asian stocks highlighted concern that exports and financial markets are threatened by Europe’s failure to end a crisis that has weakened banks and triggered sovereign bailouts. The Bank of Japan (8301) needs to balance improvements in the domestic economy against the risks from abroad in a policy decision due today after China reduced rates a week ago.
“What we’re seeing is a global policy response from Europe to China and now Korea to stave off a deep recession,” said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul.
Only two of 16 economists surveyed by Bloomberg News predicted the move, while the rest forecast no change. Seven of 17 analysts forecast the Bank of Japan will increase asset purchases today, while Indonesia will also review rates.
Asian stocks fell after the unexpected job losses in Australia and before China’s report on gross domestic product tomorrow. The MSCI Asia Pacific Index (MXAP) slid 1 percent as of 10:50 a.m. in Tokyo. The Chinese economy may have grown 7.7 percent in the second quarter, the least in three years, according to the median forecast in a Bloomberg News survey.
South Korea’s central bank “moved far faster than expected, reflecting a worsening global economic outlook,” said Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul. “Policy makers opted for monetary easing rather than a supplementary budget as they believe a fiscal response is much more costly.”
South Korea’s government bonds jumped, driving yields to record lows, and the won weakened. The yield on 3.25 percent bonds due June 2015 slid 15 basis points, or 0.15 percentage point, to 3.05 percent as of 10:48 a.m. in Seoul, Korea Exchange Inc. prices show. The won weakened 0.5 percent to 1,146.35 per dollar, according to prices compiled by Bloomberg.
The European Central Bank cut benchmark borrowing costs last week and the Bank of England raised the size of its asset- purchase programme, moves that followed the US Federal Reserve extending the Operation Twist programme aimed at lowering long- term interest rates.
In the US, some Federal Reserve policy makers have said that more stimulus is likely to be needed to boost the labour market and meet an inflation target, according to minutes of their June meeting released yesterday.
The latest readings on the US economy will come today with data on jobless claims and the Bloomberg Consumer Comfort Index, a measure of confidence. In Europe, economic reports will include inflation in France and industrial production in the euro area.
In Australia, employers unexpectedly cut payrolls in June, the first reduction in four months, and the unemployment rate rose to 5.2 percent from 5.1 percent, validating the central bank’s decision to reduce interest rates in May and June.
South Korea’s economy may expand 3.3 percent this year, less than a December estimate of 3.7 percent, the finance ministry said June 28.
The Knowledge Economy Ministry last week cut its estimate for export growth this year to 3.5 percent from a January projection of 6.7 percent, citing a slowdown in major economies. It now expects the value of overseas shipments this year to reach $574.5 billion from a previous estimate of $595 billion.
Weaker demand may cap overseas sales at South Korea’s largest companies, with Samsung Electronics Co. (005930) posting second- quarter sales that trailed estimates.
South Korean manufacturers’ confidence fell to the lowest level in four months for July while consumer confidence dropped to a three-month low in June, according to Bank of Korea reports last month. Consumer prices increased 2.2 percent in June from a year earlier, the slowest pace in 32 months. -By Eunkyung Seo