Korea may join global wave of rate cuts in March

U.S. Federal Reserve Chair Jerome Powell, left, and Bank of Korea Governor Lee Ju-yeol / Korea Times file

BOK advised not to delay action

By Park Jae-hyuk

The Bank of Korea (BOK) is expected to join a new round of global monetary policy easing this month in a bid to minimize the economic fallout from the rapid spread of COVID-19, economic experts said Thursday.

Economists said that the probability of a BOK's immediate rate cut is increasing after the U.S. Federal Reserve made an emergency 50 basis point reduction Tuesday (local time). They expect Korea's central bank to convene an extra monetary policy meeting in March, also to carry out a rate cut.

"We believe that the chance of pre-emptive easing action by the BOK has risen," JPMorgan Chase economist Park Seok-gil said. "While there is no regular rate decision meeting in March, we now expect the BOK will cut 25 basis points in March possibly through an inter-meeting action."

Samsung Securities chief economist Huh Jin-wook shared this view, saying, "The possibility has grown that the monetary policy board will cut the key rate at the April 9 meeting or before then."

BOK Governor Lee Ju-yeol did not rule out the possibility, as he said Wednesday that the central bank would take account of recent changes when conducting monetary policy.

The BOK kept its key rate frozen at 1.25 percent at its monetary policy meeting Feb. 27.

While some economists and market participants had expected a possible cut by 25 basis points due to the virus, the central bank decided to employ a "wait and see" approach.

The JPMorgan economist said in his previous report that the "hawkish BOK surprised the market."

In contrast with Korea, the U.S. Federal Reserve carried out an emergency cut, which was the first emergency, and 50 basis point, reduction since the 2008 global financial crisis.

The Fed's decision came as a growing number of developed and emerging markets have taken a dovish turn amid the faster-than-expected spread of the coronavirus.

In addition to Mexico, Russia, Argentina, Turkey and Brazil, many emerging countries in Asia, such as the Philippines, Thailand, Indonesia and Malaysia lowered their interest rates within the past few weeks.

China, the origin of the infection, cut its loan prime rate Feb. 20.

Hong Kong, Australia and Canada also joined this trend.

As central banks worldwide began working together to minimize the disease's impact, the BOK convened an emergency executive meeting Wednesday, a day after the Fed's rate cut.

After the meeting, the BOK governor hinted at a rate cut, with the promise that the central bank would take the Fed's decision into consideration.

But he maintained a cautious stance toward an extra monetary policy meeting March, saying, "Although an extra monetary policy meeting is not unprecedented, it is difficult to say at this moment whether it will take place or not."

Calls grow for immediate action

Experts advised the BOK not to miss the appropriate time to take action.

"This week's data and news suggests the risk case may materialize sooner than expected, including more widespread global contagion of the virus, and the major central banks' aggressive easing actions," the JPMorgan economist said.

"The critical rationale of the hawkish decision in February was the assumption that the contagion would not have a lasting impact on domestic (or global) demand side conditions, yet the risk to this assumption has risen."

Hyundai Research Institute director Joo Won said: "As we are facing an urgent situation, the extra budget may be more or less effective, depending on when the BOK cuts the key rate."

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