COVID-19 4th Wave Variable... Base Interest Rate Frozen at 0.50% (Update)

The Bank of Korea to Hold Monetary Policy Meeting on the 15th
Base Interest Rate 'Frozen' for the 9th Time Amid 4th Wave of COVID-19

[Asia Economy Reporter Jang Sehee] The Bank of Korea has decided to keep the base interest rate unchanged. This decision was made considering that it is too early to raise rates given the economic recovery amid the fourth wave of COVID-19.

On the 15th, the Bank of Korea held a Monetary Policy Board meeting at its headquarters in Seoul and maintained the base interest rate at a record low of 0.50% per annum. This marks the ninth time the rate has been held steady, following July, August, October, and November of last year, as well as January, February, April, and May of this year.

This decision appears to take into account the fact that new COVID-19 cases have remained in the 1,000s for a week. If the COVID-19 situation prolongs more than expected, the pace of economic recovery could be slower than anticipated. In particular, if the domestic fourth wave of COVID-19 intensifies, it may restrict the recovery of domestic demand, especially in face-to-face service industries. According to the government's 'Second Half Economic Policy Direction,' private consumption is expected to increase by 2.8% this year, marking a rebound, but this is only about half the recovery level of 2020 (-5.0%).

On the 7th, the Korea Development Institute (KDI) stated in its 'Economic Trend Report' that "due to the spread of variant coronavirus and the sharp increase in confirmed cases, economic uncertainty remains high," and "with the significant rise in COVID-19 cases since the end of June, there is a possibility that economic recovery may be delayed."

This aligns with market expectations. According to a recent survey conducted by the Korea Financial Investment Association targeting bond experts, 89 out of 100 respondents anticipated the base interest rate to remain unchanged.

However, considering the worsening financial imbalances and rising inflation, expectations for additional measures such as interest rate hikes remain. The surge in household debt exceeding 1,700 trillion won and the concentration of asset prices in real estate are cited as reasons for raising the base interest rate. Additionally, inflationary pressures are increasing, with the U.S. Consumer Price Index (CPI) rising by 5.4% compared to the same period last year in June. In this regard, Bank of Korea Governor Lee Ju-yeol also stated on the 24th of last month that "the accommodative monetary policy should be normalized at an appropriate time within this year."

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