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Korea Monetary Policy April 2020

Korea: BOK keeps the base rate at historic low in April

On 9 April, the Bank of Korea (BOK) voted to keep the base rate at 0.75%, following a 50-basis-point cut at its previous meeting on 16 March where it also announced measures to ensure sufficient liquidity for banks, businesses and households. Market analysts had been relatively split on whether the Bank would ease rates again at the April meeting.

The Bank noted that the global economic outlook continued to worsen since its previous meeting due to Covid-19. Moreover, inflationary pressures have eased up to March (March: 1.0%) and are expected to remain tepid due to weaker global oil prices. In addition, the won recovered somewhat against the dollar after the establishment of a currency swap arrangement with the Federal Reserve, which should add further downward pressure on prices. While the BOK judged the current level of monetary stimulus to be sufficient, the Central Bank stands ready to respond to volatility in financial markets and a further darkening of the global economic panorama.

Commenting on the BOK’s tone at its April meeting, analysts at Goldman Sachs noted:

“The MPC statement’s forward-looking section added back the wording that the Board ‘will judge whether to adjust the degree of monetary policy accommodation,’ which was missing in the previous statement. The wording was re-introduced last August to signal intent for monetary easing, and the BOK followed up with a 25bp policy rate cut in October. Since then, the wording was not present in the statement until February.”

This raises the possibility of a rate cut in the coming months. Moreover, the BOK kept its accommodative stance in terms of additional monetary policy stimulus as it expects the Covid-19 recession to be worse than the global financial crisis and will do whatever it can to mitigate the negative shocks to the economy.

The next monetary policy meeting is set for 28 May, although another emergency meeting before then should not be ruled out.

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