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Downside growth risks have risen materially following the COVID-19 outbreak (and spike in domestic cases). Coordinated monetary and fiscal stimulus looks to be on the cards as analysts at ANZ Research predicts a pre-emptive rate cut. 

Key quotes

“We now expect the Bank of Korea (BoK) to cut its policy rate to a new record low of 1.00% next week.”

“The COVID-19 outbreak has since introduced significant downside risks to South Korea’s growth outlook and a hit to Q1 GDP growth is on the cards. For a start, a drop in Chinese industrial activity will have spillover effects on South Korea’s economic activity via reduced import demand and supply chain disruptions. The tourism sector will also take a significant hit as visitor numbers plummet.”

“Monetary policy easing is likely to complement the fiscal push. The spike in local transmission cases this week and the government’s announcement yesterday of tougher lending rules to stabilise the housing market may convince the BoK to pull the trigger sooner rather than later.”

 

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