Korean Economy News
BOK more positive on econ for this and next year, but unready to change rate

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(Updated with quotes from BOK governor and market data)

The Bank of Korea (BOK) has turned more upbeat about the economic fallout from the coronavirus this year and a rebound next year, but maintained that stimuli must stay intact as it remains to be seen if the economy is safely in the recovery phase.

The central bank on Thursday kept the benchmark rate steady at 0.50 percent, choosing to suspend its policy action until next year to decipher the impact from the recent surge of virus cases at home and abroad, although raising gross domestic product outlooks for this year and the next.

It closes the year’s rate at a historic low after cuts by 75 basis points from March to May. The vote was unanimous at this year’s last policy meeting. The BOK unveils next year’s rate-setting calendar mid-December.

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“Considering the macroeconomic conditions, the (Korean) economy has passed the bottom, but the pace for recovery is very uncertain,” said BOK governor Lee Ju-yeol in an online press conference after the policy meeting.

“This is no time to change or consider changing the bank’s monetary policy,” he emphasized, adding that the bank will study normalizing rates only when “the economic recovery is visible and stable.”

The BOK’s policy dilemma was expected in the face of another lockdown crisis from the third wave in the capital region and across the nation at a time economic data had been showing positive signs. Korea has been keeping up new infections around 300 over the last several weeks and may have to go under de-facto shutdown in the capital region during the year-end season, which could devastate the fragile domestic demand and services sector.

“Exports and facility investments have rebounded better than expected,” Lee explained the upward revision in this year’s GDP outlook.

The BOK projected a 1.1 percent contraction for this year, which would be the first annual negative GDP performance since the financial crisis wake of 1998, but better than a negative 1.3 percent forecast in August.

The GDP fell 1.3 percent in the first quarter from the previous quarter and 3.2 percent in the second. It added 1.9 percent in the third.

The BOK raised outlook for 2021 also to 3.0 percent growth versus earlier 2.8 percent.

Inflation was forecast to rise 0.3 percent this year and 1.5 percent next year.

The positive turn comes amid rising expectations for an arrival of Covid-19 vaccines and cures following a series of news on vaccine progress at home and abroad.

Bond prices fell as the market ruled out additional easing. The three-year government bond yield gained 2 basis points to 0.991 and the 10-year government note yield 2 basis points to 1.649 by midday Thursday.

By Lee Ha-yeon

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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