BOK under mounting pressure to cut key rate

Bank of Korea Governor Lee Ju-yeol speaks in a YouTube broadcast press conference after a monetary board meeting held Feb. 27, where the central bank decided to keep the key rate unchanged at 1.25 percent. / Yonhap

Temporary rate-setting meeting likely to be held this week

By Kim Bo-eun

The Bank of Korea has been under growing pressure to lower the key rate as the economy becomes increasingly more vulnerable due to external shocks of the coronavirus that has now spread to the U.S. and Europe.

An emergency meeting of the chiefs of the government's bodies in charge of economy and finance was convened Friday after the U.S. stock market suffered its worst crash since 1987 as stocks plunged 10 percent, Thursday, local time.

BOK Governor Lee Ju-yeol's unprecedented attendance at the meeting has raised expectations that the central bank will hold an emergency rate-setting meeting this week.

The BOK left the 1.25 percent key rate unchanged at a monetary board meeting held Feb. 27, despite lowering Korea's GDP forecast for this year to 2.1 percent from 2.3 percent. Lee then said the central bank would take a wait-and-see approach.

At the time, the BOK was expected to execute a rate reduction at a scheduled rate-setting meeting in April. But a BOK official said the central bank is currently discussing the possibility of an emergency meeting.

The need for a swift rate adjustment has grown based on forecasts of a greater-than-expected economic fallout from the coronavirus crisis. Circumstances have turned for the worse, with WHO's declaration of COVID-19 as a pandemic last week.

The U.S. Federal Reserve on March 3 executed an emergency rate cut of half a percentage point, bringing down the range to 1 percent to 1.25 percent, to combat economic slowdown due to the coronavirus outbreak. It was the Fed's first 50 basis point cut since December 2008 during the financial crisis at the time.

The Bank of England also slashed its rate by 50 basis points to 0.25 percent Wednesday. The Bank of Canada made an emergency rate cut of 50 basis points to 0.75 percent, March 13.

Analysts expect the BOK's rate cut to take place this week, in time with the passage of an extra budget bill at the National Assembly. The bill is set to be voted on, Tuesday.

The Fed's additional rate adjustment meeting is also scheduled for this week. Investment banks said they expected the Fed to return to zero rates.

There are forecasts that the BOK could reduce the key rate by 50 basis points, but the more dominant view is a 25 basis point cut.

Park Chong-hoon, chief economist at Standard Chartered Bank Korea, said, "The BOK is expected to make a rate cut of 25 basis points. This is because there is a rate-setting meeting scheduled for next month."

"The central bank needs to leave room for an additional cut if economic indices for March worsen."