Korea cuts rates as part of expansionary plan

Korea’s central bank dutifully delivered a 25bp interest-rate cut on Thursday as part of a “welcoming gift” for the new finance minister, Choi Hyung-hwan.

It is the first rate cut since May last year and reduces the base rate to 2.25%, delivering the easier monetary conditions that Choi says are necessary to boost growth. He has also promised W40.7 trillion of stimulus, including W11.7 trillion extra fiscal spending and a package of structural reforms — a big bang expansionary policy.

Bank of Korea governor Lee Ju-yeol, who is also a new appointee, seems to have struck a cooperative relationship with Choi, drawing comparisons among analysts to the relationship between Shinzo Abe and Hiroki Kuroda in Japan.

“The rise of Choinomics has apparently become a political reality,” wrote Raymond Yeung, an economist at ANZ, in a report two weeks ago.