South Korea freezes interest rate at record low of 0.50 per cent


  • South Korea
  • Thursday, 16 Jul 2020

A South Korean national flag and the Bank of Korea flag fly outside the central bank's headquarters building in Seoul, South Korea. Bank of Korea Governor Lee Ju-yeol and other monetary policy board members decided to keep the seven-day repurchase rate on hold at an all-time low of 0.50 per cent. Bloomberg

SEOUL, July 16 (Xinhua): South Korea's central bank froze its benchmark interest rate at a record low on Thursday (July 16) to see the effect of the previous rate cuts earlier this year amid lingering worry about an economic fallout from the Covid-19 outbreak.

Bank of Korea (BOK) Governor Lee Ju-yeol and other monetary policy board members decided to keep the seven-day repurchase rate on hold at an all-time low of 0.50 percent.

The rate freeze decision was in line with market expectations. According to a Korea Financial Investment Association (KFIA) survey of 200 fixed-income experts, 99 percent predicted the rate on hold.

The central bank lowered the target rate by 25 basis points in May, after slashing it by 50 basis points in March to tackle the economic downturn from the COVID-19 pandemic across the world.

The country's real gross domestic product (GDP), adjusted for inflation, shrank 1.3 percent in the first quarter from the previous quarter, marking the biggest quarterly fall since the fourth quarter of 2008 when the global financial crisis roiled the world economy.

The BOK estimated that the real GDP may have retreated more than 2 percent in the second quarter from the prior quarter given the fast slide in export, which accounts for about half of the export-driven economy.

South Korea's export contracted 10.9 percent in June from a year earlier, keeping a double-digit reduction for three straight months.

However, it slowed down from declines of 23.7 percent in May and 24.3 percent in April respectively. For the first 10 days of July, the outbound shipment slipped 1.7 percent compared with a year earlier.

Industrial production kept sliding for the first five months of this year, but output in the services industry advanced 2.3 per cent in May from a month earlier, recording the biggest monthly expansion in 76 months.

Production in the wholesale and retail sector grew 3.7 per cent in May, and output in the eatery and lodging gained 14.4 per cent in the month.

It was ascribable to the government's offer of relief grants to all households that helped bolster private consumption.

Retail sale, which reflects consumer spending, advanced 4.6 per cent in May from a month earlier on solid demand for durable and semi-durable goods.

Worry lingered over an economic slump from the Covid-19 pandemic. The Organization for Economic Cooperation and Development (OECD) forecast in June that the country's real GDP would contract 1.2 per cent in 2020 under a scenario that no second wave of the Covid-19 comes this year.

Since South Korea's GDP data began to be compiled in 1953, the country recorded GDP fall only twice in 1980 and 1998.

Despite the expected economic downturn, the BOK would be hard to cut its key rate further due to soaring housing prices stemming from the record-low borrowing cost and its subsequent ample liquidity.

The government unveiled the country's biggest-ever supplementary budget plan worth 35.1 trillion won (29 billion U.S. dollars) that was passed through the parliament earlier this month.

It has announced a total of 250 trillion won (US$210 billion) worth of stimulus packages to financially support micro-business owners, small firms and big corporations that suffered from losses from the virus outbreak.

The finance ministry expected the economy to grow 0.1 percent this year thanks to fiscal stimulus packages and more accommodative monetary policy.

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