Rate cut predicted in April due to virus fallout: analysts

All News 13:38 February 28, 2020

By Chung Joo-won

SEOUL, Feb. 28 (Yonhap) -- South Korea's central bank is likely to cut the policy rate in April amid concerns that the spreading novel coronavirus outbreak will hurt Asia's fourth-largest economy, analysts here said Friday.

The Bank of Korea stood pat this week by keeping the rate at a record low of 1.25 percent, while trimming its economic outlook for the year to 2.1 percent from the previous 2.3 percent.

More analysts are now betting on a rate cut in April as the virus cases are increasing at an alarming level. So far, the country has reported 2,022 confirmed COVID-19 cases, with 13 deaths from the virus.

Rate cut predicted in April due to virus fallout: analysts - 1

"Chances are high that the BOK will slash the key rate to a fresh low of 1 percent in the April meeting," said SK Securities Co. analyst Shin Eul.

"The BOK revised down the growth estimate by 0.2 percent even when exports and other economic indices are not out yet," he noted, suggesting the BOK is wary of further economic fallout from the COVID-19 outbreak.

Some analysts adhered to the "zero rate cut within this year" scenario, citing the country's running-high housing policies and the upcoming general election in April.

"The rate freeze was against the market consensus but comes in line with the government's policy appetite," said Yuanta Securities researcher Jeong Won-il, skeptical of a further rate freeze this year.

"The government is being careful about generating bubbles, as the price hike in the housing market has accelerated since the fourth quarter of last year, he 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, according to BOK data.

In an effort to help the economy create a buffer against headwinds, the finance ministry announced emergency measures worth more than US$16 billion to cushion the impact from the new coronavirus outbreak.

The ministry also vowed to push for an extra budget of more than 6 trillion won to help minimize the economic fallout from the novel virus.