October 24, 2020

South Korea’s central bank keeps rates steady as growth outlook sours

People cross a road in front of the Bank of Korea in Seoul on Aug. 27, 2020.

Jung Yeon-je | AFP | Getty Images

South Korea’s central bank kept its policy rate steady on Wednesday as it sought to keep a lid on red-hot property prices, even as it expects the economy to see the worst contraction in over two decades in
2020 due to the coronavirus pandemic.

The Bank of Korea kept the base rate steady at a historic low of 0.5%, as expected by all 34 economists in a Reuters poll. The central bank has cut rates by 75 basis points so far this year and ramped up bond-buying purchases to help the economy withstand the coronavirus fallout.

The decision to hold fire comes as Seoul’s median home prices have risen more than 50% in the past three years, despite slumping economic activity in 2020.

Asia’s fourth-largest economy plunged into recession in the second quarter and could suffer more pain in the coming months if rising coronavirus cases in the U.S. and Europe hit economic activity and demand for exports.

Investors expect the BOK to shed some light on whether it may regularly buy treasury bonds to help finance state spending. Local bond markets have struggled to absorb South Korea’s record debt sales of 167 trillion won planned for this year, driving bond yields higher.

Governor Lee Ju-yeol’s news conference will be broadcast live on YouTube starting at 0220 GMT.

“Things to look out for at the presser includes whether the BOK would buy treasury bonds on a regular basis,” said Kim Sang-hun, an analyst at Hi Investment & Securities.

Ample monetary easing and more than 277 trillion won ($240.89 billion) of fiscal stimulus has helped soften the blow to the economy from the coronavirus.

South Korean exports rose for the first time in seven months in September as major trading partners eased lockdowns and gradually resumed business activity.

But the BOK has said it expects the economy to shrink 1.3% in 2020 — which would be the biggest full-year contraction in over two decades.

Gross domestic product fell a revised 3.2% from a quarter earlier in the second quarter, the biggest fall since 2008.

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