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Thu, February 3, 2022 | 01:32
Policies
BOK keeps base rate at 1.5 percent
Posted : 2019-08-30 18:37
Updated : 2019-08-30 19:34
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By Jhoo Dong-chan

The Bank of Korea (BOK) has kept the nation's policy rate unchanged at 1.5 percent, the central bank said Friday.

The central bank lowered the rate by 25 basis points to 1.5 percent July 18, a pre-emptive measure before the U.S. Federal Reserve cut rates to between 2 percent and 2.25 percent on July 31, but the BOK decided to stand still this month.

"It would be difficult for the BOK to lower the rate for the second month in a row," said a BOK official.

The BOK has not cut the rate for two consecutive months since it did during the global financial crisis between October 2008 and February 2009.

Daishin Securities researcher Kong Dong-rak said the U.S. Federal Reserve's neutral stance is one of the factors behind the BOK's standstill.

"Expectations are still very high for a rate cut due to the ongoing trade dispute between the U.S. and China, but Fed Chairman Jerome Powell expressed his reservations during the recent Jackson Hole meeting about U.S. President Donald Trump's strong push for a rate cut," Kong said.

"Powell said in the meeting that America has achieved its target employment and inflation rate. His remark is a bit off from Trump's strong request for a rate cut."

BOK Governor Lee Ju-yeol said the recent hike in Seoul apartment prices is another factor for the central bank to keep the current rate at 1.5 percent.

"Seoul apartment prices in certain areas recently jumped over expectations the BOK could lower the rate this month," Lee said.

According to the Korea Appraisal Board, Seoul apartment prices were up 0.03 percent this week from the previous week, continuing its uptrend for nine consecutive weeks despite the government's plan to introduce more regulations to lower the city's home prices.

Eugene Securities analyst Shin Dong-soo said the central bank wants to confirm its July rate cut effect first.

"It should see its July rate effect first," he said. "The government also implemented a supplementary budget to revitalize the nation's economy. The BOK wants to confirm how it affects the economy in the third quarter."

Analysts agreed that the central bank is likely to lower the rate at least once by the end of the year if economy shows no signs of recovery.

"Downward pressure is strengthening. The Sino-American trade dispute doesn't seem like it will be settled anytime soon. Tokyo's move to remove Korea from its trade whitelist is another pressure on the nation's economy," said IBK Securities researcher Kim Ji-na.

"The government is seeking to expand its spending to boost the economy, but the effect seems to be limited. The only viable option is the BOK's rate cut."

According to forecasts by 42 domestic and overseas financial institutions compiled by Bloomberg, Korea's economy is expected to grow 2 percent this year, down from a 2.1 percent prediction in July.

This is considerably lower than the government's forecast last month of 2.4 percent to 2.5 percent.


Emailjhoo@koreatimes.co.kr Article ListMore articles by this reporter



 
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