COVID-19 Triggered Interest Rate Cut Speculation... Bank of Korea Eyes February Rate Decisions in Australia and ASEAN

Attention on Monetary Policy Meetings of Countries with Strong Chinese Influence Amid Spread of Novel Coronavirus

[Asia Economy Reporter Kim Eun-byeol] As the novel coronavirus infection (Wuhan pneumonia) spreads, there is growing anticipation that the Bank of Korea (BOK) may expedite its base interest rate cut, and the BOK is closely monitoring the monetary policy meetings of overseas central banks. Since monetary policy meetings of countries with significant economic influence from China are scheduled consecutively this month, the BOK believes it can use these countries' interest rate decisions and economic assessments as hints.

On the 4th, a Bank of Korea official stated, "Coincidentally, monetary policy meetings of countries with high exposure to China are lined up this month," adding, "We are paying close attention to the outcomes of these meetings." The countries the BOK is particularly watching are the five ASEAN countries (Indonesia, Malaysia, Thailand, the Philippines, and Vietnam), as well as Australia and New Zealand. All of these countries are significantly influenced economically by China.

The first key schedule to watch is the Reserve Bank of Australia (RBA)'s base interest rate decision, which will be made this afternoon Korea time. Australia has rapidly increased its economic linkage with China since 2003. Although the current base interest rate is at a historic low of 0.75%, if the impact of the novel coronavirus is severe, the timing of an additional rate cut could be brought forward. The recent economic losses caused by the wildfire disaster are also a reason why the RBA is considering a rate cut.

In Australian exports, China accounts for about 30%, nearly five times the share in 2003 (about 7%). This was largely due to Australia's iron ore exports to China rising from 32% in 2003 to about 82% last year. However, concerns have arisen that demand will sharply decline as Chinese factories have halted operations due to the novel coronavirus spread, causing iron ore futures prices to plunge nearly 10%. Chinese tourists also make up 15% of all tourists in Australia, making the impact from a decline in tourists inevitable. Westpac Bank of Australia forecasted that if Chinese tourism were to be completely suspended for a year, Australia's annual economic growth rate could drop by nearly 1 percentage point.

Thailand (on the 5th) and the Philippines (on the 6th) will also decide their base interest rates consecutively. Particularly, Thailand and the Philippines are considered vulnerable to a decrease in Chinese tourists. Capital Economics (CE) recently projected in a report that Thailand and the Philippines will cut their base interest rates this month and predicted, "If the novel coronavirus continues to spread, interest rate cuts could again become an issue in Korea." Additionally, New Zealand (on the 12th), which is indirectly affected by the Australian economy, and Indonesia (on the 20th), which maintained an accommodative monetary policy last year, are also scheduled to decide their interest rates this month.

Another Bank of Korea official said, "We cannot base the timing of Korea's rate cut solely on other countries," but added, "We can refer to the interest rate decisions of countries heavily influenced by China and gauge the global economic impact." The BOK will hold its Monetary Policy Board meeting on the 27th to decide the monetary policy direction and will also release a revised economic outlook reflecting the impact of the novel coronavirus on the Korean economy on that day.

This content was produced with the assistance of AI translation services.