BOK seen holding rates as property risks leave policymakers walking tight rope: Reuters poll
July 14, 2020
By Joori Roh
SEOUL (Reuters) – South Korea’s central bank is expected to keep its policy rate steady on Thursday and for the rest of 2020, a Reuters poll showed, as red-hot property prices forced policymakers into a tight corner as they look to support the coronavirus-ravaged economy.
All 30 analysts surveyed by Reuters expect the Bank of Korea (BOK) to keep its base rate <KROCRT=ECI> unchanged at the current record-low of 0.50% after a 25-basis-point cut in May.
The BOK in May trimmed its 2020 economic projections for Asia’s fourth-largest economy to a 0.2% decline, the worst since 1998 during the Asian financial crisis, but the International Monetary Fund sees an even bigger 2.1% contraction.
The country has so far reported a total 13,512 coronavirus infections and 289 deaths since the outbreak earlier this year.
DBS Economist Ma Tieying said a pick-up in domestic demand and the easing in the pace of declines in exports have reduced the urgency for further rate cuts.
“The expansion in money supply and the rebound in property prices should also reduce the need or constrain the room for the BOK to further ease monetary policy,” she added.
The record low policy rate has been blamed by industry analysts and first home buyers for fuelling a rampant property boom in key areas.
On Friday, the government announced that it will further tighten property rules and impose heavier taxes on multiple homeowners to curb runaway home prices.
All 24 analysts who provided forecasts for end-2020 saw the BOK standing pat through the rest of the year.
“Further easing is unlikely as May meeting minutes showed the bank has only limited policy room left, while major economies have stopped cutting rates further,” said Kim Jina, an analyst at IBK Securities & Investment.
The May 28 BOK meeting minutes also showed two board member expressing concerns that lower rates could funnel even more cash into the volatile property market.
The central bank announces its rate decision around 0100 GMT on Thursday and will broadcast the governor’s press conference live on YouTube from 0220 GMT.
(Editing by Shri Navaratnam)