South Korea: BoK seen on hold for the time being – UOB

Ho Woei Chen, CFA, Economist at UOB Group, suggested the Bank of Korea (BoK) is likely to keep its monetary stance unchanged in the next months.

Key Quotes

“he Bank of Korea (BOK) kept its benchmark Base Rate unchanged at 0.50%... in line with market consensus and our expectation. BOK governor Lee Ju-yeol said that the rate decision today was unanimous. BOK will maintain its accommodative monetary policy stance given the slow economic recovery and weak demand-side inflationary pressure.”

“BOK cut interest rate twice this year, in March and May with no further rate cut response to the second wave of COVID-19 outbreak in August as the government turned its focus back onto fiscal policy. Governor Lee highlighted at the briefing today that the economic recovery will require a flexible fiscal policy and also reiterated BOK’s readiness to purchase government bonds in case of market volatility.”

“Worries over a fresh round of COVID-19 outbreak could hamper the domestic economic recovery. However, given the large fiscal response, including the 4th supplementary budget that was passed in late-September and a record budget for 2021, we maintain our expectation for the BOK to remain on hold ahead. This also takes into consideration that the economy has continued to improve, the ‘effective lower bound’ for interest rate as well as concerns over the rising household debt.”