BOK cuts key rate to 1.5%

A currency trader watches monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul on July 15

Indonesia's central bank joined the doves, cutting its benchmark interest rate for the first time in almost two years in a bid to lift sluggish economic growth.

"The current slowdown is due in large part to supply shocks", Bank of Korea Governor Lee Ju-yeol said Thursday after the central bank cut its policy rate by a quarter percentage point to 1.50 percent.

Growth worries have pushed central banks around the world to adopt a more dovish stance, following the U.S. Federal Reserve's lead, with the Bank of Korea going a step ahead and surprising with a rate cut on Thursday.

"Japan's export restriction measures are an unjust economic retaliation that violates the order of free trade and seriously damages friendly and mutually beneficial relationships between South Korea and Japan", the South Korean parties and presidential Blue House said in a joint statement after the meeting.

Japan has restricted exports of three chemicals crucial to South Korea's tech sector and used by major firms including Samsung Electronics and SK Hynix in the manufacture of microchips and smartphones.

Lee emphasized the government needed to maintain strict measures aimed at containing housing prices while monetary policy was focused on risks from slowing economic growth.

The Bank of Korea slashed its growth forecast for the economy to 2.2 percent on July 18, citing sluggish demand at home and overseas amid growing trade protectionism and a delayed recovery in the global IT sector.

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In a separate report, Kyodo news cited Japanese government sources as saying Tokyo would reject Seoul's request to hold another working-level meeting to discuss the export controls.

The rate cut, the first since June 2016, underscores the need to help the economy deal with a series of headwinds including a trade tussle between the United States and China, and more recently, its own feud with Japan over the latter's export restrictions.

South Korean Foreign Ministry spokesperson Kim In-chul said, "The date is unilaterally and arbitrarily set by Japan".

Its removal from the list would require Japanese companies to apply for case-by-case approvals for exports to South Korea of hundreds of items deemed sensitive, not just the three materials affected by the trade curbs that took effect July 4.

Last year, South Korea's top court ordered two Japanese companies to compensate former workers whom they exploited during Japan's occupation of the country.

"It wouldn't be ideal for export restrictions to worsen", he said.

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