Bank of Korea to Hold Rates, Cut GDP View: Decision Guide

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(Bloomberg) — The Bank of Korea is expected to hold its policy rate at a record low on Thursday while slashing growth projections as a resurgence of the coronavirus throws recovery prospects into disarray.

All 22 analysts surveyed by Bloomberg expect the seven-day repurchase rate to remain at 0.5%, a level Governor Lee Ju-yeol has said is close to the effective lower bound. Lee this week told lawmakers the bank may cut its economic projections for 2020 by a considerable margin after forecasting a 0.2% contraction in May.



a screenshot of a cell phone: As 2020 GDP forecasts slide, pressure mounts on BOK to do more


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As 2020 GDP forecasts slide, pressure mounts on BOK to do more

With little question among analysts that the BOK will stand pat on rates, the focus shifts to how significantly the bank cuts its view of this year’s growth, said economist Park Jeong-woo at Nomura Holdings Inc.

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“Anything below -1% and people will take that to mean the bank holds a very negative view,” he said.

A surge in new virus cases to above 100 per day since mid-August threatens to undermine a recovery that’s been driven by a pickup in sentiment and consumer spending. The end of lockdowns in key markets has helped ease South Korea’s export slump, but trading partners are facing new outbreaks of their own.

South Korea is considering ratcheting up its social distancing rules to a level that’s close to a lockdown, igniting fears the country could suffer the same kind of economic damage seen in countries that clamped down hard on activity.

Further Measures

The new virus wave, coupled with floods that battered some parts of South Korea, have prompted calls for further stimulus to shore up the economy, including a fourth extra budget. While the government has so far discounted the chance of such spending, central bank watchers say the BOK may signal more debt purchases as funding pressure grows.

Bank of Korea Under Pressure to Buy More Bonds After Covid Spike

Since the pandemic started, the BOK has pumped liquidity into the market and slashed its key interest rate by 75 basis points. Analysts see rising home prices and mounting debt among households as reasons the bank may be reluctant to cut further.

“Continued concerns about the housing market rally should minimize the chances of an additional rate cut for the time being, despite the signs of a serious second wave of the pandemic,” analysts including Oh Suktae at SG Securities wrote in a report.

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