By Joori Roh
SEOUL (Reuters) – South Korea’s central bank is expected to keep its policy rate unchanged at a record-low 0.75% when it meets on Thursday but it may ease later this quarter to offset the economic hit from the coronavirus outbreak.
Fifteen of 20 analysts surveyed by Reuters expect the Bank of Korea (BOK) to stand pat after it delivered a 50 basis point emergency cut in mid-March, its largest easing since the global financial crisis.
Since then, the bank has rolled out its own version of quantitative easing, pledging to buy an unlimited amount of bonds for three months via repo auctions, which would help more financial institutions to borrow money.
“The BOK will hold rates at the April meeting and watch the effects of its latest rate cut and its liquidity supply measures such as unlimited repo purchase,” said Kim Yu-mi, an economist at Kiwoom Securities. However, she said a rate cut was possible if financial markets became unstable.
Meanwhile, 10 of 20 analysts said that the BOK would cut its rates at least once by the end of the second quarter with recent economic indicators suggesting the worst is yet to come.
“We don’t think the BOK is done with easing yet,” said Prakash Sakpal, ING economist, who sees a 50 basis point cut in the current quarter as the trade-reliant economy struggles with the hit to exports.
South Korean exports slipped in March as the coronavirus ravaged supply chains although solid chip demand provided a rare bright spot as lockdowns across the world forced millions to use telecommuting technology.
The government’s recent fiscal stimulus also warrants coordinated action from the central bank, analysts say.
“Further easing is inevitable given persistent concerns of global recession … while the government’s second extra budget is expected to increase the demand for policy coordination,” said Paik Yoon-min, fixed income analyst at Kyobo Securities.
Last week, the central bank governor said it will prepare for emergency situations and could consider further measures to stabilise the corporate bond market.
Minutes from the March emergency meeting showed board members remained more concerned about growth and demand than they did the local currency and household debt, suggesting a tendency to loosen policy.
A growing number of analysts expect Asia’s fourth-largest economy to shrink this year, with Nomura now seeing a 6.7% contraction.
Infections in South Korea have topped 10,000, increasing the risk of recession as consumers stayed at home and production slumped.
The April meeting will be the last for four of the seven-member board before their terms expire this month. Candidates for new members will be announced in coming weeks.
The bank will continue to broadcast the governor’s press conference live via YouTube on Thursday and will announce the rate decision by text message and email to reporters to limit crowds and contain the spread of the coronavirus.
($1 = 1,228.9700 won)
(Reporting by Joori Roh; Editing by Sam Holmes)
