BoK: A rate cut in May is not ruled out – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviewed the recent decision by the Bank of Korea (BoK) to keep rates on hold at 0.75%.

Key Quotes

“Bank of Korea (BOK) maintained its benchmark Base Rate at record low of 0.75% today. This is not unexpected after the central bank delivered an emergency 50bps cut in March and announced quantitative easing (QE) measure to buy “unlimited” amount of bonds at the repo rate of no higher than 0.85% for three months between April and June.”

“We do not rule out another 25bps Base Rate cut at the next scheduled meeting on 28 May should the pandemic worsen in the next few weeks. Having said that, the pressure to cut interest rate has eased owing to the frontloaded cut and QE measure while the policymakers continue to roll out more support measures including a plan for a second stimulus package which will consist of cash handouts as well as cheap loans to businesses. The BOK also plans to expand the bonds eligible for its repurchase operations in order to provide further liquidity support.”

“The government has passed KRW11.7 trillion (US$9.8 billion or 0.6% of GDP) supplementary budget targeting greater disease control efforts, support for small merchants and SMEs, consumption and employment as well as the local economies. The package is comparable in size to its stimulus spending during the Middle East Respiratory Syndrome (MERS) outbreak in 2015. Another KRW100 trillion of financial support package was announced in late-March to help small businesses. A second extra budget worth KRW7.1 trillion is being planned for this month which will include cash handouts while an additional KRW36 trillion (US$29.5 billion) worth of cheap loans will be made available to exporters hit by the pandemic.”