UPDATE 2-Korea central bank keeps rates steady as COVID-19 cases rise, sounds more upbeat on growth

16-Apr-2021 Intellasia | Reuters | 5:02 AM Print This Post

South Korea’s central bank kept interest rates at record lows on Thursday and said it was too early to discuss a change in the direction of monetary policy, even as it sounded more upbeat on growth and expected inflation to accelerate.

Bank of Korea (BOK) kept the seven-day repurchase rate unchanged at 0.5%, as widely forecast in a Reuters poll, amid concerns that rising coronavirus cases could derail the economic recovery.

The central bank has kept rates at that level since May 2020, after it cut them by 75 basis points last year to help the economy cope with the fallout of the COVID-19 pandemic.

While the BOK said robust exports and an uptick in consumption will continue to power the economy, it said uncertainties remained and it would continue to monitor the coronavirus outbreak.

“Looking at how the global economy and domestic activities fared in the first quarter… growth of mid-3 percent is very possible (in 2021),” Bank of Korea Governor Lee Ju-yeol said at a news conference.

He expects the economy to expand between 3 percent and 4 percent this year, compared with a previous forecast for 3 percent growth in 2021.

“But it’s a concern that the resurgence of the coronavirus has hardly subsided, and that the inoculation rate remains at a 2 percent range.”

South Korea has reported around 700 new coronavirus cases per day this week, a level not seen since January.

Analysts expect surging home prices and faster inflation to push policymakers to start raising interest rates in 2022, but not sooner, due to uncertainty over the recent spike in coronavirus cases.

South Korea’s consumer price inflation hit a 14-month high of 1.5 percent in March and the BOK said on Thursday inflation will run around 2 percent before declining. Policymakers are also keeping an eye on rising property prices amid concerns they could swell an already hefty household debt pile.

“(The BOK) could turn on the blinker by the end of the fourth quarter and possibly raise interest rates in the first quarter of next year,” said Ahn Jae-kyun, fixed income analyst at Korea Investment & Securities.

“How the virus spread would play out is still hard to predict, but it seems the market is focusing on the brighter economic assessment.”

South Korean bond futures fell after Lee’s news conference, with the June contract dropping as much as 0.17 points.

Asia’s fourth largest economy contracted by 1.0 percent in 2020, the worst since 1998, due to the fallout of the COVID-19 pandemic.

$1 = 1,109.4000 won



Category: Korea

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