Korea: BOK keeps rates at all-time low in August, downgrades outlook
August 27, 2020
At its meeting on 27 August, the Bank of Korea (BOK) kept its base rate at 0.50%, in line with market expectations.
The Bank’s decision to hold rates follows disappointing economic data, with both the recovery abroad and private consumption at home losing steam. Moreover, the Bank judged that a surge in Covid-19 cases at home is set to curtail momentum. Accordingly, the BOK’s forecast for economic growth this year was downgraded to a 1.3% contraction, from May’s minus 0.2%. Looking at prices, the bank sees anaemic inflation on weak activity and subdued oil prices.
Looking forward, the Bank suggested that it remains open to further easing to support the economy and prompt inflation, confirming in its statement that it will “maintain its accommodative monetary policy stance”. However, Robert Carnell, head of Asia-Pacific research at ING, noted:
“Together with the apparently unwelcome resurgence in house prices, we don’t see the central bank cutting rates any further from the current 0.5% 7-day repo (policy) rate.”
The next monetary policy meeting is set for 14 October.
Author: Frederico Teixeira de Abreu, Junior Economist