The Bank of Korea Holds Base Interest Rate Steady at 0.50% per Year... Likely to Maintain Throughout the Year

The Bank of Korea Still Has Room to Adjust Rates... But 'Real Estate Bubble Concerns' Remain

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Bank of Korea has decided to keep the base interest rate at a record low of 0.50% per annum. Despite the ongoing economic recession caused by the novel coronavirus disease (COVID-19) pandemic, the current base rate is already close to the effective lower bound, leaving no room for further rate cuts. It is also believed that concerns over overheating in asset markets such as real estate and stocks played a role in this decision.

On the 27th, the Bank of Korea's Monetary Policy Committee held a plenary session and decided to maintain the base interest rate at 0.50% per annum. This indicates a commitment to continue accommodative monetary policy amid the persistent spread of COVID-19. Since the rate is already at its lowest level, further reductions were deemed impossible.

Currently, the U.S. Federal Reserve's (Fed) base interest rate is at zero, and some in the market estimate Korea's effective lower bound for the base rate to be around 0.25%. However, due to uncertainties such as a second COVID-19 pandemic wave, additional rate cuts are being reserved as a last resort.

However, the Bank of Korea emphasized that if the real economy suffers greater shocks due to a resurgence of COVID-19, there remains room to respond with rate cuts.

Bank of Korea Governor Lee Ju-yeol stated at a press conference after the rate decision, "If the COVID-19 resurgence expands significantly and the real economy suffers considerable shocks, monetary policy will be crucial, and there is still room to respond with rate cuts." However, he added, "Whether to lower the already very low base rate further requires careful consideration of the effects and side effects."

Experts agree that the Bank of Korea will keep the base rate unchanged within the year, considering that the U.S. Federal Reserve is expected to maintain its zero-level base rate until 2022 and concerns over 'asset bubbles' in stocks and real estate.

Professor Lee In-ho of Seoul National University's Department of Economics said, "Due to concerns about bubbles in the real estate and stock markets, it seems likely that the base rate will be kept unchanged this year." Lee Mi-sun, a researcher at Hana Financial Investment, also stated, "Even if COVID-19 resurges, the government is expected to respond primarily through fiscal policies such as the 4th supplementary budget," adding, "If there is one more rate cut, it would be to 0.25%, but reaching that point will be difficult."

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