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Asia Today ISSN 1861-4604 Monday, May 21, 2018

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South Korea cuts interest rate but trade with U.S. soars

Grew nearly 14 percent in three years to $115.6 billion

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SEOUL - Trade between the United States and South Korea grew nearly 14 percent in three years to $115.6 billion, after the signing of a bilateral free trade agreement in 2012, but South Korea's central bank cut its base rate to a record low, citing a slower-than-expected economic recovery.

Bank of Korea Governor Lee Ju-yeol said the rate cut was needed because forecasts indicated the growth needed to rehabilitate the domestic economy was not possible without the lowering of interest rates by 0.25 percent to 1.75 percent, Yonhap reported Thursday.

"(At 1.75 percent), we have a level where actual economic recovery is possible," Lee said.

The rate cut comes after a round of deeper cuts were implemented in 2014, when the rate was lowered 0.5% each time.

The Wall Street Journal reported the South Korean central bank has joined other banks in China, India and Thailand in lowering rates.

The central bank chief also said the bank will increase loans available to small and medium-sized firms by $2.7 billion and said the South Korean economy is not in deflation, a problem commonly associated with economic woes in Japan.

But South Korea's trade ministry stated Thursday the free trade agreement between the United States and South Korea is paying off, with significant improvements in trade and investment since the KORUS FTA, or Korea-US Free Trade Agreement, was signed in March 2012.

The trade ministry said the FTA is more successful than other South Korean bilateral trade agreements. The United States was South Korea's second-largest trading partner, generating 10.5 percent of all South Korean trade in 2014. Only China was bigger, with bilateral exchange comprising 21.4 percent of all South Korean trade flows.

South Korea is the sixth-largest trading partner for the U.S.

The greatest South Korean beneficiaries were automakers and mobile phone manufacturers, with U.S.-bound exports up 20.2 percent and 9.9 percent, respectively, for each sector in 2014, as the U.S. economy recovered from the financial crisis of 2008.

The United States agricultural sector has also reaped benefits.

According to South Korean statistics, the recovery in U.S. corn has led to a 136.3 percent increase in corn and other agricultural imports to South Korea.Elizabeth Shim

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