South Korea: BoK expected to remain on hold in 2021 – UOB

Economist at UOB Group Ho Woei Chen, CFA, assesses the recent decision by the Bank of Korea (BoK) to leave rates unchanged.

Key Quotes

“The Bank of Korea (BOK) kept its benchmark Base Rate unchanged at 0.50%... in line with consensus and our expectation. This is the fifth consecutive meeting that the BOK has stood on hold since cutting the interest rate by 75 bps in 1H20 in response to the COVID-19 pandemic.”

“BOK governor Lee Ju-yeol said that the rate decision today was unanimous and reiterated that the central bank will maintain its accommodative monetary policy stance until stable recovery is expected. It is also premature to end the lending facilities although we expect these to be unwound gradually as the economy stabilizes further. He maintained that the BOK will purchase government bonds and take other measures to stabilize markets if needed.”

“Nonetheless, there is clearly more attention given to financial stability risks as Governor Lee made several references to rising house prices and sharper gains in the stock prices while cautioning against the use of excessive leverage in such investments. The government is likely to continue to rely on macro prudential measures to address its concerns for the housing market while interest rate normalization is likely premature given the uncertainties. As such, we continue to see BOK remaining on hold through 2021 to facilitate the economic recovery.”