Southern Korean central bank lowers rates to aid debt restructuring

South Korea’s central bank unexpectedly cut the benchmark seven-day repurchase rate to 1.25%, a new record low, to aid indebted companies in their restructuring plans. The South Korean won moved sharply lower.

The decision to cut benchmark rates was projected by only Goldman Sachs of 18 economists surveyed while others saw a reduction in the next couple of months.

South Korea’s sovereign yield dropped to a record low this month after minutes of the May meeting showed a board member called for lower rates while the government and central bank planned to create a KRW 11tn ($9.5bn) fund to facilitate corporate restructuring.
 
The board’s May minutes showed several members were worried about downside risks from the corporate overhaul such as unemployment and declining investment.
 
The government’s plans to aid corporate restructuring would support its ailing shipbuilders who had slashed jobs and were in process of restructuring their debt.
 
Source: Bloomberg