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(LEAD) BOK stands pat amid signs of recovery, soaring property prices

All News 10:34 July 16, 2020

(ATTN: UPDATES with reports of BOK monetary policy decision statement in paras 3, 6-7, 17-18)
By Byun Duk-kun

SEOUL, July 16 (Yonhap) -- As widely expected, the Bank of Korea (BOK) kept the policy rate frozen at 0.5 percent Thursday, amid slight signs of an economic recovery from the pandemic-caused slump and growing concerns over soaring property prices.

In a survey conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, all 17 analysts and experts polled anticipated a rate freeze this month and for the rest of the year.

"Currently available information suggests that the global economy has started to rebound moderately from the sharp contraction, as economic activity gradually resumes despite the ongoing spread of COVID-19," the BOK said in its monetary policy decision statement.

(LEAD) BOK stands pat amid signs of recovery, soaring property prices - 1

The BOK decision to stand pat follows two rate reductions. The central bank sent the policy rate to the record low level on May 28, about two months after it delivered its first emergency rate reduction in over a decade, slashing the key rate by half a percentage point to 0.75 percent.

Despite the two rate cuts aimed at insulating Asia's fourth-largest economy from the fallout of the new coronavirus outbreak, the BOK has revised down its growth estimate for Asia's fourth-largest economy to a 0.2 percent contraction from a 2.1 percent on-year expansion forecast in February.

The BOK noted the local economy will likely shrink at a faster rate than earlier forecast in May.

"Looking forward, facilities and construction investment are expected to grow at a moderate pace; however, the pace of recovery in consumption and exports will be slower than previously forecast. Accordingly, GDP growth this year is likely to be lower than the May forecast of -0.2 percent," it said in its released statement.

In the first three months of the year, the economy contracted 1.3 percent from three months earlier, marking the sharpest on-quarter decline since the fourth quarter of 2008.

On a year-on-year basis, it expanded 1.4 percent in the January-March period.

The BOK earlier anticipated the economy to have fallen over 2 percent on-quarter in the April-June period.

Some data showed that Asia's fourth-largest economy is recovering from the virus-ravaged slump.

The country's exports shrank for the fourth consecutive month in June, decreasing 10.9 percent from a year earlier, but the rate of decline slowed sharply from a 23.7 percent on-year plunge in May and 24.5 percent in April.

In the first 10 days of the month, outbound shipments slipped only 1.7 percent on-year, according to earlier reports.

But the country's job market has been mired in the face of the coronavirus pandemic, even without the massive economic lockdowns seen in many other countries battling the COVID-19 pandemic.

South Korea lost about 352,000 jobs in June, marking the fourth consecutive monthly decline in the number of employed people as the coronavirus pandemic hammers job markets, government data showed. It was the first time since October 2009 that the nation lost jobs for four consecutive months.

South Korean jobseekers read information at a job fair on July 15, 2020, in Seoul, where 58 local businesses sought to hire some 270 new employees. (Yonhap)

South Korean jobseekers read information at a job fair on July 15, 2020, in Seoul, where 58 local businesses sought to hire some 270 new employees. (Yonhap)

Still, the BOK had widely been anticipated to keep the key rate steady this month as there are budding signs of an economic recovery.

The BOK too noted problems of skyrocketing housing prices, believed to have been partly prompted by record low interest rates.

"The increase in household loans has expanded materially, and housing prices have generally accelerated in all parts of the country," it said.

The central bank is also seen as having little room to take another round of rate reduction.

"Considering that the key rate may already be near the effective lower boundary, the BOK will likely focus on unconventional measures, such as purchasing state bonds, instead of monetary policy steps, such as a rate cut, to support the economy," Kyobo Securities analyst Baek Yoon-min said earlier.

BOK Gov. Lee Ju-yeol insists the policy rate has yet to reach the lower boundary but agrees the two rate reductions this year may have sent it much closer to such a limit.


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