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Korea Monetary Policy October 2020

Korea: BOK keeps rates at all-time low in October

At its meeting on 14 October, 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 weak activity and a deteriorating labor market. A resurgence of Covid-19 cases globally and the tightening of measures to contain the rise in infections are prompting uncertainty over a recovery in the short term, therefore the BOK decided to maintain its current accommodative policy stance in a bid to counter these setbacks. However, concerns over rising house prices and household debt likely discouraged the Bank from further easing.

Looking forward, the Bank confirmed in its statement that it will “maintain its accommodative monetary policy stance”, assuring it will watch economic developments closely amid the ongoing coronavirus outbreak. Most of our panelists see rates unchanged next year.

Commenting on the outlook, analysts at Nomura noted:

“We believe that monetary policy is likely to remain unchanged for some time for two reasons. First, there is less pressure on the BOK to support the economic recovery, following the announcements of stimulus packages. […] Second, monetary policy is constrained by the effective lower bound and we believe it will take some time for the BOK to design a new policy strategy.”

The next monetary policy meeting is set for 26 November.

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