SKorea Central Bank Lowers Rate        07/18 06:38

   SEOUL, South Korea (AP) -- South Korea's central bank on Thursday cut its 
policy rate for the first time in three years to shore up growth threatened by 
a trade dispute with Japan.

   The Bank of Korea lowered its key interest rate by a quarter percentage 
point to 1.50% following a meeting of its monetary policy committee, which also 
cut its growth forecast for the country's economy this year from 2.5% to 2.2%.

   The bank cited slowing exports and domestic investment and volatility in 
financial markets related to the trade war between the U.S. and China and 
Japanese curbs on certain technology exports to South Korea. The bank had hiked 
the rate by 0.25% points in November and last lowered borrowing costs in June 
2016.

   The bank said in a statement it will "carefully monitor developments such as 
the U.S.-China trade dispute, Japan's export restrictions, any changes in the 
economies and monetary policies of major countries ... and geopolitical risks, 
while examining their effects on domestic growth and inflation."

   Lee Ju-yeol, the bank's governor, said South Korea's exports and domestic 
investment during the first half of the year were more sluggish than expected 
and that it's "hard to be optimistic about the (economic) conditions moving 
forward."

   The rate cut came amid escalating tensions between South Korea and Japan 
over Tokyo's move to tighten controls on the exports of photoresists and two 
other chemicals to South Korean companies that use them to produce 
semiconductors and display screens for smartphones and TVs.

   South Korea says the Japanese trade curbs could hurt its export-dependent 
economy and disrupt global supply chains. Lee said the bank's monetary 
policymakers assessed how the trade dispute could affect growth at the 
macroeconomic level.

   South Korea has accused Japan of weaponizing trade to retaliate against 
South Korean court rulings calling for Japanese companies to compensate aging 
South Korean plaintiffs for forced labor during World War II, and plans to file 
a complaint with the World Trade Organization.

   Tokyo says the materials affected by the export controls can be sent only to 
trustworthy trading partners. Without presenting specific examples, it has 
questioned Seoul's credibility in controlling the exports of arms and items 
that can be used both for civilian and military purposes.

   South Korea is also bracing for the possibility that Japan will take further 
steps by removing it from a 27-country "whitelist" receiving preferential 
treatment in trade.

   Its removal from the list would require Japanese companies to apply for 
case-by-case approvals for exports to South Korea of hundreds of items deemed 
sensitive, not just the three materials affected by the trade curbs that took 
effect July 4. It will also allow Japanese authorities to restrict any export 
to South Korea when they believe there are security concerns.

   "Considering the volume of trade between South Korea and Japan and the 
connections between companies and industries, it's hard to say the 
materialization of export restrictions and their expansion would have a small 
effect on (our) exports and our economy," said Lee.

   "It's hard to make specific predictions for now on how the export 
restriction movement will develop and what kind of effect that would have ... 
It wouldn't be ideal to allow the situation to worsen and a lot of effort 
should be invested to prevent it from happening," he said.

   The bank projected South Korea's economy to grow 2.5% in 2020, when it 
expects the private sector slowdown to ease.


(KA)