S Korea Cuts Key Rate, Japan Watching Currency Market
South Korea's central bank lowered its key interest rate by three-quarters of a point early Monday, its biggest one-day move ever, in a sign that the global financial crisis is now reshaping Asian economies far removed from the original source of trouble in the U.S.
Meanwhile, in Tokyo, Japan's finance minister verbally intervened in the market by suggesting the government is willing to counter the strengthening yen.
And in Sydney, officials acknowledged the government bought the Australian dollar on Friday to shore up its sagging value, the first time it has intervened in currency markets since 2007.
The actions led to mixed results in Asian stock markets at mid-morning. South Korea's broad-market Kospi index was up about 2%. Japan's Nikkei 225 Stock Average, which had fallen briefly below its lowest level since bursting of Japan's asset bubble in the late 1980s, was up 0.7%. Australia's S&P/ASX 200 index was down 1.9%.
The Bank of Korea's decision - which lowered the rate to 4.25% from 5% - was the second rate cut this month as it tries to engineer a gradual rather than abrupt slowdown in the country's economy.
The bank on Oct. 9 cut the rate by one-quarter point to 5%, but few South Korean banks followed because of the need to attract deposits in the face of the global liquidity crunch.
South Korean government officials are worried that small and midsize businesses, which rely heavily on bank loans, are being hurt by high interest rates and will be forced to cut jobs without access to bank finance.
In addition to the deepest cut on record to the main interest rate, the BOK also slashed its credit loan rate to commercial banks by three-quarters of a point to 2.5%. That special, low-interest rate is now sharply lower than the main rate.
The new cuts underscore the role sudden change of policy focus at the BOK caused by the unfolding worldwide financial crisis, which has tightened the availability of money. Only two months ago, the BOK had raised the key interest rate because of inflation fears.
In Japan, fears that the sharply rising yen would hurt exporters that the economy is heavily dependent on spurred Finance Minister Shoichi Nakagawa to declare there was 'excessive volatility' in the currency market and that the Japanese government was watching the market 'with great interest.'
After falling below Y91 on Friday, the dollar was trading around Y94.30 in Monday morning trading in Tokyo. Japan is expected to soon announce markets stabilization measures. |
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