Korea: BOK keeps rates at all-time low in January
January 15, 2021
At its meeting on 15 January, 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 a rise in Covid-19 cases which is supressing activity at home. Meanwhile, inflation remained muted in recent months, and the impact of the current global resurgence in coronavirus cases is also likely to have influenced the decision. Meanwhile, concerns over debt levels and surging property prices likely discouraged the Bank from providing further monetary easing.
In its press release, the BOK stated it would maintain its accommodative policy on expectations of a modest recovery and downbeat, below-target inflation. However, due to concerns over financial stability there is likely little room for further rate cuts, with a strong majority of our panel seeing the BOK keeping rates unchanged until the end of this year. That said, further easing could be carried out through other channels, such as a bond purchasing program.
On the subject, analysts at Nomura commented:
“We believe that, given the domestic economic slump from the winter outbreak and the political landscape, the BOK will likely announce a regular bond-buying programme in Q1 to coordinate with the government’s expansionary fiscal policy.”
The next monetary policy meeting will be held on 25 February.
Author: Frederico Teixeira de Abreu, Junior Economist