Bank of Korea surprisingly cut benchmark interest rate by 25 bps

Despite woes of 'stoking household borrowing'.

According to BBVA, the Bank of Korea (BOK) cut its benchmark interest rate by 25 bps to 2.50%.

The move was a surprise to most analysts who had expected the BOK to stay on hold after a better than expected Q1 GDP outturn and concerns about further stoking household borrowing, which remains high.

Here's more from BBVA:

In its accompanying policy statement, the BOK cited weak domestic growth, a sluggish global economy, influence of the yen weakening, and geopolitical risks. It also noted subdued inflation (1.2% y/y in April), which is well below the official target range of 2.5%-3.5%.

Despite headwinds, we expect growth to pick up during the course of the year, to 2.7% in 2013. On this basis, we expect the BOK to stay on hold, but we would not rule out further cuts if growth remains weak.

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