Bank of Korea’s rate cut reflects growing deflation risks

A note from UBS referencing the Bank of Korea interest rate cut yesterday makes an interesting point. Analysts argue that the Bank of Korea’s rate cut reflects a broader trend where growth and deflation risks outweigh inflation concerns.

While global trade disruptions have raised costs, weaker demand is having a net deflationary impact, leading central banks in Asia to ease policy.

Unlike the U.S. Fed and ECB, which prioritize inflation control, economies like South Korea and China are more focused on sustaining growth (although we have been waiting quite a while since the last easing from the People’s Bank of China).

Lower rates may weaken the Korean won (KRW) but could support domestic demand and investment.

This highlights a key shift: for many economies, slowing trade and demand will be more critical for policy than short-term inflation spikes.

KRW update, weekly candles:

This article was written by Eamonn Sheridan at www.forexlive.com.