BIG SURPRISE: Korea's Central Bank Cuts Rates, First Time In 3 Years

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The Bank of Korea surprised the markets by cutting its benchmark rate by 25 basis points to 3.00 per cent, reports Bloomberg.This is the first interest rate cut since February 2009.

Big surprise,” tweeted Bloomberg BRIEF economist Michael McDonough.  “One of the reasons Korea hadn’t cut earlier was elevated inflation expectations.”

It seems economic concerns are trumping those inflation concerns.

Earlier this month, we learned that Korea’s manufacturing PMI fell to 49.4 in June, down from 51.0 in May. A reading below 50 signals contraction in the industry.

At least some of this weakness is the result of the decelerating Chinese economy.  Due to its high correlation to other Asian economies, Goldman Sachs recently called Korea Asia’s canary in the coal mine.

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