On the 18th, the Bank of Korea decided to lower the benchmark interest rate by 0.25 percentage points to 1.5%. At the same time, it lowered its economic growth forecast for 2019 from 2.5% to 2.2%.

This is the first time in three years that the Bank of Korea has lowered its benchmark interest rate.

At the meeting of the Bank of Korea’s Financial Currency Committee on July 18, Bank of Korea Governor Lee Joo-yeol said that South Korea’s economic growth and price trends were weaker than expected, and the export and investment situation in the first half of the year was not as expected. The Financial and Monetary Committee predicts that South Korea's economic growth will slow down.

In order to boost the economy, the Bank of Korea decided to lower the benchmark interest rate from 1.75% to 1.5%.

The Bank of Korea stated that the main reason is that since the beginning of this month, the ongoing economic and trade frictions between South Korea and Japan have deepened the risks facing the South Korean economy.

In addition, the global trade situation has also become a factor affecting South Korea's economic downturn. Data show that in the first quarter of this year, South Korea’s economy shrank by 0.4% month-on-month.

On the 18th, central banks of many countries, including South Korea, announced interest rate cuts. At the same time, Federal Reserve officials were still releasing easing signals, further hinting at an interest rate cut at the end of the month. What impact will multiple central bank interest rate cuts have on the market?

Recently, one of the keywords in the global financial market is: interest rate cut! Interest rate cut! Interest rate cut!

With the Federal Reserve’s interest rate cut at the end of the month almost a foregone conclusion, other central banks have rushed to take action to prevent being hit.

The Bank of Korea announced on the 18th that it would lower the benchmark interest rate by 25 basis points to 1.5%. This is the first interest rate cut by the Bank of Korea since September 2016. Following the Bank of Korea, the Bank of Indonesia also announced that it would lower the seven-day reverse repurchase rate by 25 basis points to 5.75%.

Subsequently, the South African Central Bank announced that it would cut the key interest rate by 25 basis points to 6.5%. Also on the 18th, the Central Bank of Ukraine also announced an interest rate cut, lowering the main interest rate by 50 basis points.

According to incomplete statistics, since the beginning of this year, nearly 20 central banks around the world have taken interest rate cuts.

After Federal Reserve Chairman Jerome Powell gave congressional testimony, strengthening expectations for an interest rate cut, the trend of global central banks cutting interest rates was further highlighted. It can be said that a new round of central bank interest rate cuts has begun.

In the overnight market, Federal Reserve officials were still sending out easing signals. Currently, U.S. federal funds rate futures trading forecasts: the probability of a 50 basis point interest rate cut at the end of this month has increased significantly from 34% to 59%.

The global low interest rate environment is beneficial to some emerging market assets. The stock markets, bond markets and currencies of emerging markets are all expected to have short-term benefits. However, the longer-term performance still depends on economic conditions. At the same time, the risk of a return to easing cannot be underestimated. For example, increased risk appetite, overheating of lending, etc.

In this regard, the Institute of International Finance and the Bank for International Settlements have both warned of the risks caused by excessive easing.

China, are you following?

Interest rate cuts refer to banks using interest rate adjustments to change cash flows. When banks cut interest rates, the income from depositing funds in banks decreases, so interest rate cuts will cause funds to flow out of banks, and deposits will be converted into investments or consumption. The result is an increase in capital liquidity.

Generally speaking, interest rate cuts will bring more funds to the stock market, thus helping stock prices rise. Interest rate cuts will stimulate the development of the real estate industry. Cutting interest rates will promote corporate loans to expand reproduction, encourage consumers to take loans to purchase large-ticket items, and gradually heat up the economy. The benchmark interest rates for RMB loans and deposits of financial institutions will be lowered starting from November 22, 2014.