Bank of Korea leaves policy rate unchanged at 0.5% per annum, economic uncertainty remains strong = Bank of Korea

Feb 25 - 2021


The Bank of Korea (BoK) held its regular Monetary and Monetary Affairs Committee meeting on Tuesday and left its policy rate unchanged at 0.5% per annum. This is the sixth time the bank has left its policy rate unchanged since last July. The Bank's decision to leave the policy rate unchanged at 0.5% per annum for the sixth time since last July seems to have been based on the fact that financial markets have been relatively stable recently and that asset markets such as real estate and equities have been overheated.

In March last year, the Bank of Korea cut its policy rate from 1.25 per cent to a record low of 0.75 per cent, citing an expected economic slowdown due to the spread of the new coronavirus, and in May it cut the rate by a further 0.25 per cent. In May, the rate was cut by another 0.25 per cent, and has remained unchanged since then.

The future of the economic recovery remains uncertain. The third wave of the new coronavirus epidemic, which began in November last year, led the government to raise the level of its quarantine measures to "ensure social distance". If the central bank moves to raise interest rates in an attempt to pre-emptively respond to inflationary pressures and other factors, it could stifle consumption and investment.

On 22 June, Bank of Korea Governor Lee Ju-yeol said, "Although the domestic economy is showing a gradual recovery trend due to recent strong exports and other factors, there is still a high degree of uncertainty in the growth process due to the situation in Corona," and that the bank would operate an accommodative monetary policy to support the economic recovery.

Many academics, think tanks and bond market experts also expected the Bank to remain unchanged.

Kim So-young, a professor of economics at Seoul National University, said, "The economy is not recovering sufficiently, and there is no other way but to leave it unchanged," noting that a wide range of people, including the self-employed, continue to be hit by the new Corona.

He also noted that a wide range of people, including the self-employed, continue to be hit by the new Corona strains. Dong Rak Kong, a research fellow at Daishin Securities, said, "Now is the time to maintain the easing policy until the economy normalises.

The fact that the current policy rate of 0.5 per cent has reached its effective lower limit is one of the factors that make it difficult for the central bank to cut interest rates further, as a cut to 0.25 per cent would bring it in line with the upper limit of the US policy rate, raising concerns that foreign investors may withdraw their funds.