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Economist Ho Woei Chen, CFA, at UOB Group, reviewed the recent decision by the Bank of Korea (BoK) to reduce the policy rate further.

Key Quotes

“Bank of Korea (BOK) cut its benchmark interest rate by 50bps to 0.75% at an emergency meeting on Monday (16 March). The base rate will be at a new record low with effect from 17 March. The announced measures are targeted at reducing downside growth risks due to the significant uncertainties from the global spread of COVID-19 as well as to ease the market volatilities. The last time that BOK had cut its benchmark rate by 50bps or more in a single meeting was in 2009.”

“The move follows the slew of central banks easing which include the Federal Reserve’s unscheduled 100bps cut to the Fed Funds Target Rate (FFTR) on Sunday (15 March). BOK Governor Lee Ju-yeol said that the timing of rate cut now is better than in February as Fed’s cut has provided the BOK with more room for policy actions… For future policy actions, he said that the BOK will consider purchasing government bonds if needed, signaling the scope for quantitative easing (QE).”

“In addition to the benchmark rate cut, the BOK announced further support for SME lending and improving the financial market in the short-term.”

“The BOK did not provide an updated outlook for GDP growth but Governor Lee said that it will be lower than its forecast of 2.1%. The BOK said it “will maintain its accommodative monetary policy stance going forward so as to reduce the downside risks to the real economy and ease volatility in the financial markets.” With the interest rate cut today, we do not expect further move by the BOK at its scheduled meeting on 9 April. Further rate moves will be highly dependent on how the COVD-19 infection pans out.”