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Korea Monetary Policy April 2021

Korea: BoK keeps rates at all-time low in April

At its meeting on 15 April, the Bank of Korea (BoK) kept the base rate at its record low of 0.50%, in line with market expectations.

The Bank’s decision to hold came amid an improvement in economic conditions, with parliament passing a USD 13.3 billion supplementary budget on 25 March, private consumption and investment gaining momentum, and unemployment dropping notably in recent months. Moreover, concerns over debt levels and surging property prices—which have continued to rise since the previous meeting—discouraged the Bank from providing further monetary easing. That said, there is still uncertainty clouding the outlook due to a recent uptick in Covid-19 cases, and inflation was still below the Bank’s 2% target in March, meaning monetary tightening was not warranted either.

In its press release, the BoK stated it would maintain its accommodative policy. That said, due to concerns over financial stability there is likely little room for further rate cuts, with the recent introduction of an extra budget also reducing the need for further easing: As such, our panel sees the BoK keeping rates unchanged until the end of this year.

On the outlook, analysts at ANZ commented:

“While the Central Bank acknowledged that the growth and inflation outlooks have improved since its February projections, it also reiterated persistent uncertainties surrounding the pace of the recovery. The upshot is that monetary policy is set to remain accommodative through 2021, with normalisation to commence only in 2022.”

However, Jeng Woo Park, an economist at Nomura, sees the accommodative policy lasting longer:

“We expect the BoK to remain patient, […] amid a still-sluggish domestic economy and our view that financial conditions will become less accommodative in coming months, we expect the BoK to leave policy rates unchanged until end-2022 to sustain the growth recovery.”

The next monetary policy meeting will be held on 27 May.

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