The Bank of Korea Holds Base Rate at 0.75%... "Let's Wait and See" (Update)

Last Month's Base Rate '0.50% Point Big Cut' Impact... Difficult to Predict Monetary Policy Effectiveness

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Monetary Policy Committee of the Bank of Korea decided on the 9th to keep the base interest rate at the current 0.75%. This means that since the rate cut last month was significant and various liquidity supply measures such as repurchase agreement (RP) purchases were introduced, they intend to observe the effects of these policies this time.

Additionally, this decision leaves room to respond to potential future situations such as worsening global financial market conditions and slowing growth rates due to the novel coronavirus disease (COVID-19).

On the day, the Monetary Policy Committee held a meeting chaired by Governor Lee Ju-yeol and decided to keep the base rate at 0.75%. Previously, on April 16, the committee conducted a 'Big cut' by lowering the base rate by 0.5 percentage points through an emergency meeting. The Bank of Korea has only held emergency meetings to cut rates twice before: in September 2001 (0.50 percentage point cut) right after the 9/11 terror attacks, and in October 2008 (0.75 percentage point cut) during the financial crisis.

The market also believes that it is still too early to assess the effects of the various policies the Bank of Korea introduced in response to COVID-19. This is because the Bond Market Stabilization Fund (Cha-an Fund) and the unlimited RP purchase program started operating last week. The judgment is that it is not too late to cut rates after observing the market effects.

Kim Sang-hoon, a researcher at KB Securities, said, "Generally, it takes about six months for monetary policy to have market effects," adding, "They are likely to respond after seeing the first quarter gross domestic product (GDP) growth rate, which will be released at the end of April."

Experts expect that since the Bank of Korea cut rates a month ago, it will focus on economic diagnosis for now and then introduce additional measures.

Gong Dong-rak, a research fellow at Daishin Securities, said, "Since Korea is not a key currency country like the U.S. Federal Reserve (Fed), they are taking a cautious approach to manage the economy," adding, "There is room for one more rate cut, but it will not be easy given the zero interest rate environment." Researcher Kim also stated, "Recently, various countries have introduced measures to stabilize global financial markets," and "The stabilization of international market prices through these policies is also analyzed to have influenced the decision to keep the base rate unchanged."

Meanwhile, the next Monetary Policy Committee meeting to decide the base rate is scheduled for May 28.

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