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(LEAD) BOK freezes key rate amid looming economic fallout from virus

Economy 10:49 February 27, 2020

(ATTN: UPDATES with reports of BOK statement on its latest monetary policy decision, additional information in paras 4-16; ADDS photos)
By Byun Duk-kun

SEOUL, Feb. 27 (Yonhap) -- South Korea's central bank on Thursday decided to keep its policy rate steady for now despite growing calls for a rate reduction to counter the growing economic fallout from the new coronavirus outbreak.

The Bank of Korea (BOK) left the base rate frozen at the current 1.25 percent.

The central bank has been keeping the policy rate at the record low level since October when its seven-member board made its second rate cut in three months as the economy showed signs of a recovery.

In this photo provided by the Bank of Korea (BOK), BOK Gov. Lee Ju-yeol bangs his gavel at the start of a BOK monetary policy board meeting at the South Korean central bank in Seoul on Feb. 27, 2020. (PHOTO NOT FOR SALE) (Yonhap)

The decision to stand pat came despite a downward revision in the BOK's growth outlook for the local economy, published shortly after Thursday's monetary policy board meeting.

The central bank slashed its growth estimate to 2.1 percent, down from a 2.3 percent forecast three months earlier.

Despite its decision to hold the key rate steady, the BOK's monetary policy board highlighted the negative impact of the COVID-19 outbreak, which originated in China but is spreading fast into other countries.

"Although the sluggishness in facilities investment has eased, consumption has contracted and exports have slowed owing to the spread of the COVID-19 outbreak while the adjustment in construction investment has continued," it said in a statement.

The potential deadly virus has infected 1,595 people and killed 12 here as of Thursday.

Major retailers here have estimated their annual operating profits to plunge as much as 30 percent this year due to reduced sales and increased costs caused by the virus.

Exports may also suffer another setback after 14 consecutive months of decline.

China, the epicenter of the new coronavirus, is also said to be facing serious setbacks in its own local demand, which will inevitably lead to a drop in its demand for South Korean goods.

China is by far the single largest importer of South Korean products, accounting for more than 20 percent of South Korea's overall outbound shipments.

In this photo taken Feb. 26, 2020, quarantine officials disinfect a movie theater in Seoul known to have been visited by a person diagnosed with the new coronavirus, COVID-19. (Yonhap)

"As it is expected that domestic economic growth will be moderate and it is forecast that inflationary pressures on the demand side will remain at a low level, the board will maintain its accommodative monetary policy stance," the BOK board said.

"In this process it will judge whether to adjust the degree of monetary policy accommodation, while thoroughly assessing the severity of the COVID-19 outbreak, its impact on the domestic economy, and changes in financial stability including household debt growth," it added.

South Korea's household debt, including credit card spending, reached a record high of over 1,600 trillion won (US$1.31 trillion) as of end-December, the BOK said earlier.

Thursday's monetary policy decision also came as the government is seeking to form an extra budget to shore up the virus-hit economy.

The government has yet to submit a specific proposal, but many believe it will seek at least 10 trillion won (US$8.23 billion) or more in additional spending to counter the fallout from the virus outbreak.

Thursday's decision to keep the rate frozen was also in line with market consensus.

In a survey conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, 10 of 19 experts polled had expected to see a rate freeze in February.

bdk@yna.co.kr
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