The Bank of Korea Holds Base Rate Steady... Will There Be Additional Rate Cuts?

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Bank of Korea (BOK) froze the base interest rate on the 9th, drawing attention to whether there will be additional rate cuts. Since the BOK has shown its willingness to respond using all available measures, the possibility of further rate cuts cannot be ruled out.

Previously, BOK Governor Lee Ju-yeol stated, "There is room for interest rate adjustments, so we will respond with policy measures according to the situation," adding, "The effective lower bound can also decrease depending on how advanced countries decide their interest rates," indicating the possibility of additional cuts.

The effective lower bound is the minimum interest rate at which monetary policy remains effective. Until now, South Korea's effective lower bound has been considered to be between 0.75% and 1.00%. It is possible to interpret that the BOK's base rate has already reached this effective lower bound. On the 16th of last month, the Monetary Policy Committee held an emergency meeting and lowered the base rate by 0.50 percentage points to an all-time low of 0.75% per annum.

However, experts predict that the BOK will focus on liquidity supply measures for the time being and will reserve the rate cut option as much as possible.

Kim Sang-hoon, a researcher at KB Securities, said, "They will likely consider whether to introduce additional policies depending on the first quarter domestic gross domestic product (GDP) announcement at the end of this month," adding, "If the situation worsens, they could do it, but it doesn't seem like they will use it so easily."

Oh Chang-seop, a researcher at Hyundai Motor Securities, also said, "April is expected to be a major turning point in the COVID-19 crisis," and added, "If real economy indicators turn around in May or June, the additional rate cut option will not be introduced."

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