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South Korea’s Rate Of Decline

For several years, the Korean won has gradually depreciated against the euro (and USD), a trend that Seoul intends to preserve to strengthen its products' competitiveness.

By EC Invest

After lowering its key interest rates in October, the Bank of Korea lowered them again at its November monetary policy meeting. Its primary policy rate is now 3.0%, and the authorities in Seoul say they will not stop there.

This willingness to reduce the cost of credit quickly compared with the recent past, as the Korean central bank had always been cautious in the fight against inflation. However, the sudden fall of this indicator to 1.3% in October opened a window of opportunity to accelerate the reduction of credit costs. At the same time, Donald Trump’s return to the White House of Donald Trump poses a significant challenge in Seoul and reinforces the urgency of a credit (and one won) cheaper.

For good reason, for this economy, which is highly dependent on its exports, especially the US market, the expected imposition of new tariffs in the United States constitutes a significant risk. By revising its growth forecasts downwards and announcing that further rate cuts will take place in the coming months, Seoul is preparing as much as possible for a complex scenario on the foreign trade front, offering its businesses cheaper credit and limiting any chance of appreciation of the won. The manoeuvre aims to limit the damage caused by US tariffs and preserve Korean products' competitiveness, especially in Asian competition.

ECI SOUTH KOREA Rates Fall GRAPHIC 920x320

It is a good bet that South Korea will not be isolated. In all places, the various exporters to the US market will try to weaken their currency against the dollar to remain competitive. Many countries – including, but not limited to, Asian countries – will follow the Korean precedent in the coming weeks and months.

Despite the recent political crisis decreasing over the country, we will keep but no longer buy Korean shares until we get a clearer picture. We will continue to monitor the situation.

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