Lee Ju-yeol "Possibility of Negative Growth in Q1... Impact of COVID-19" (Update)

Bank of Korea Lowers This Year's Growth Forecast to 2.1%
Base Interest Rate Held Steady at 1.25% per Annum

[Image source=Yonhap News]

[Asia Economy Reporters Eunbyeol Kim, Sehee Jang] Lee Ju-yeol, Governor of the Bank of Korea, stated on the 27th that "the shock caused by the novel coronavirus infection (COVID-19) will be greater than that of other infectious diseases." He also forecasted the possibility of negative growth in the first quarter.

On the same day, the Bank of Korea revised its economic outlook, lowering this year's growth forecast from the previous 2.3% to 2.1%, a 0.2 percentage point decrease. This forecast assumes that COVID-19 will peak in March and then subside.

At a press conference held after the Monetary Policy Committee meeting, Governor Lee said, "Due to the unexpected outbreak of COVID-19, consumption has contracted and production activities have faced disruptions, causing difficulties," adding, "The economic outlook inevitably relies on assumptions about COVID-19, and it was made on the premise that COVID-19 would peak in March and gradually calm down thereafter."

The Bank of Korea also indicated that the damage caused by COVID-19 is expected to be concentrated in the first quarter. Governor Lee forecasted, "Although the situation may vary depending on how the situation develops, the most affected area is the contraction of consumption," and added, "Since a significant part of the shock is expected to be concentrated in the first quarter, there is also a possibility of negative growth in the first quarter." He identified service industries such as tourism, food and accommodation, and wholesale and retail as the most severely impacted sectors.

He further noted that the uncertainty of the economic growth trajectory remains high depending on the development of the COVID-19 situation.

He also expressed the view that recent economic measures against COVID-19 are more effective when selectively supporting vulnerable sectors through micro-policies rather than adjusting interest rates. Governor Lee said, "Therefore, the Bank of Korea has decided to support companies affected by COVID-19 through its own lending system," adding, "This measure is expected to provide considerable assistance in reducing interest burdens for self-employed individuals and small and medium-sized enterprises struggling due to COVID-19."

He maintained the position that the side effects of lowering interest rates, such as on household loans, will be carefully examined. Governor Lee said, "The government has introduced various policies to stabilize the real estate market, and although it will take some time for these to show effects, the increase in household loans remains high," adding, "We cannot confidently say that housing prices have stabilized at this point."

When asked whether an emergency Monetary Policy Committee meeting could be convened to cut interest rates if COVID-19 spreads rapidly in the future, he explained, "There have been cases of adjusting interest rates through emergency Monetary Policy Committee meetings even after the 2008 financial crisis," but added, "At this point, I do not think it is necessary to consider or mention an emergency meeting, but we will always make timely efforts as needed."

In response to a question about whether a 'zero interest rate' scenario is being considered, he said, "It is true that the uncertainty of the growth path has increased significantly due to COVID-19," but added, "I do not think we are in a situation where we need to consider lowering the current base rate of 1.25% to 0%." He also stated, "I believe that the two base rate cuts in July and October last year were smoothly transmitted to the financial market and had a positive impact on the real economy."

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