Bank of Korea to keep interest rates steady
South Korea's central bank will likely keep interest rates on hold on Thursday as the central bank weighs concerns about rising household debt and property prices with the need to support a coronavirus-hit economy.
The Bank of Korea (BOK) was expected to keep its base rate KROCRT=ECI steady at a record low of 0.50%, according to all 26 analysts surveyed by Reuters, after a total of 75 basis points rate cuts since March.
Thirteen of 15 analysts who provided forecasts for end-2021 saw the BOK holding rates throughout this year and next. One forecast a rate cut in 2021 and the other a rate hike.
South Korea's economy plunged into recession in the second quarter of 2020 as the coronavirus pandemic battered exports and business activity, despite efforts by the government and the central bank to support Asia's fourthlargest economy. "It is true that the gloomy economic condition warrants an accommodative monetary policy," said Kim Jina, analyst at IBK Investment & Securities.
"But the bank will need to see whether the resurgence in COVID-19 leads to further deterioration of economic indicators, which makes any (immediate) policy action less urgent." This week's policy review comes as South Korea has seen a surge in coronavirus cases and is considering deploying the toughest stage of socialdistancing rules, where schools and businesses would be urged to close.
But minutes from the latest BOK monetary policy meeting showed that while board members agreed rates needed to stay loose for the time being, some flagged the need to pay closer attention to financial imbalances as household debt rises along with property prices.
"Concerns regarding rising housing prices and household borrowings will hold back the BOK from easing further," said Defa Zhao from Continuum Economics. The central bank is currently expecting gross domestic product to fall 0.2% this year the worst since the 1998 financial crisis - and is expected to revise down this forecast at the meeting this week.