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(LEAD) BOK again trims growth outlook, stands pat amid growing virus fallout

All News 10:47 August 27, 2020

(ATTN: RECASTS headline, paras 1-5, 7, 9-10 with updated info)
By Kim Soo-yeon

SEOUL, Aug. 27 (Yonhap) -- South Korea's central bank on Thursday again sharply lowered its growth outlook for the economy this year and froze its policy rate at a record low as uncertainties stemming from spiking virus cases heightened.

The Bank of Korea (BOK) again trimmed its growth outlook for Asia's fourth-largest economy for the year, expecting a 1.3 percent contraction amid the deepening virus fallout.

The latest growth projection marked a sharp cut from the central bank's estimate in May of a 0.2 percent contraction.

"The recovery of domestic economic growth is likely to be slower than previously forecast, largely due to the domestic resurgence of COVID-19," the BOK said in a statement.

As widely expected, the BOK's monetary policy board kept steady the benchmark seven-day repo rate at 0.5 percent for the second straight occasion.

The BOK cut the policy rate to the record low in May after delivering an emergency rate cut of half a percentage point to 0.75 percent in March to cushion the impact of the new coronavirus outbreak. In July, the central bank also kept the rate at the current level.

The bank said it will maintain its accommodative monetary policy stance as economic growth is expected to be sluggish and inflationary pressure will likely remain weak.

In the wake of the COVID-19 pandemic, the South Korean economy showed some signs of recovery on eased slumps in exports and domestic consumption, backed by firm outbound shipments of key items, such as chips and massive fiscal spending.

This file photo, taken June 4, 2020, shows stacks of import-export cargo containers at South Korea's largest seaport in Busan, 450 kilometers southeast of Seoul. (Yonhap)

But the recent spike in virus cases and concerns about a nationwide pandemic have cast clouds on the Korean economy.

South Korea's new virus cases spiked to a near six-month high of 441 Thursday, with almost 4,000 new cases across the nation identified over the past two weeks.

Earlier this week, BOK Gov. Lee Ju-yeol told lawmakers that he does not rule out the possibility of the Korean economy contracting around 1 percent in 2020 and the pace for economic recovery will remain weak.

Asia's fourth-largest economy contracted 3.3 percent in the second quarter from three months earlier after shrinking 1.3 percent on-quarter in the January-March period.

The economy's second straight quarterly fall came as exports, which account for 50 percent of the Korean economy, tumbled amid global lockdowns caused by the virus outbreak.

Citizens wait to receive coronavirus tests at a screening center in Seoul's northern district of Nowon on Aug. 26, 2020. (Yonhap)

South Korea's subdued inflation and still-high housing prices also appeared to warrant the BOK's rate freeze this month, experts said.

The country's consumer prices rose 0.3 percent in July from the previous year, marking the first upturn in three months. The BOK aims to keep inflation at 2 percent over the medium term.

Despite the government's measures to control rising home prices, the housing market has yet to be stabilized.

Household credit hit a record high of 1,637.3 trillion won (US$1.38 trillion) in June on the back of banks' home-backed lending.

Experts said the BOK is expected to keep the policy rate steady throughout this year as it faces limited room for further rate cuts.

"Despite the pandemic-caused uncertainties, the policy rate is expected to be frozen for a considerable period of time due mainly to limited room for further cuts," said Kim Sun-tae, an economist at KB Kookmin Bank.

Gov. Lee earlier said the base rate has yet to reach the lower boundary but agreed this year's two rate reductions may have sent it much close to such a limit.

Analysts said the BOK may focus on non-conventional policy tools, such as state bond purchases, rather than rate cuts, in a bid to respond to the economic slump caused by the COVID-19 pandemic.


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