South Korea: BoK expected to remain on hold in the next months – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviewed the latest decision by the Bank of Korea (BoK) to leave the key interest rate unchanged at 0.50%.

Key Quotes

“The Bank of Korea (BOK) kept its benchmark Base Rate unchanged at 0.50%..., in line with market consensus and our expectation. The rate decision today was unanimous. BOK said monetary policy will remain accommodative until there are signs of recovery.”

“BOK revised down its GDP forecast for 2020 to -1.3% from May’s -0.2%. This is in line with our forecast. Based on the advance 2Q numbers, South Korea’s GDP had contracted at -0.8% y/y in 1H20. Following the 2Q GDP release, we have revised lower our forecast for the full-year 2020 GDP to -1.3% (from -0.5% previously) with 3Q20 at -2.2% y/y and 4Q20 at -1.5% y/y. These forecasts have incorporated an expected pick-up in growth momentum to positive territory in the second half of the year.”

“After 75 bps cut to the benchmark rate this year, we believe the BOK is done with cutting rates given that (1) the GDP is likely to have bottomed though recovery may still remain weak, (2) the policy rate is now very close to the ‘effective lower bound’ and (3) the concern over property bubbles has seen South Korea announcing three rounds of measures since December 2019 to dampen real estate prices… We maintain our forecast for the Base Rate to be kept at 0.50% for the rest of 2020.”