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.

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