Bank of Korea makes emergency rate cut

SEOUL: The Bank of Korea yesterday took the emergency step of cutting the benchmark interest rate by 50 basis points in a rare inter-meeting rate review, taking the policy rate below 1% for the first time in history to limit the fallout from the coronavirus.

The BoK has not made a cut through an emergency policy meeting since October 2008 when Asia’s fourth-largest economy was reeling from the global financial crisis, and the base rate , now at 0.75%, is the lowest since the bank adopted the current policy system in 1999.

The central bank also lowered borrowing costs for the bank’s cheap loan programmes designed to ensure smaller companies can easily and cheaply access credit.

“The monetary policy board assessed that the extent of accommodative monetary policy needed to be further eased to reduce financial market volatilities and curtail impact on growth, inflation,” it said in a statement after the rate decision.

The BoK has been facing criticism for failing to act in February, when it held rates and opted to raise the cap of inexpensive loans to businesses.

The central bank cut its growth forecasts for this year to 2.1% from 2.3% then, a projection that now seems out of reach as economists like Goldman Sachs Group Inc see only 1% expansion.

“The BoK is finally forking over what the markets have been clamouring for and expecting to get,” said Moon Hongcheol, an analyst at DB Financial Investment. “The impact of the cut is questionable because the decision isn’t too surprising. The BoK isn’t getting ahead of markets.”