Korea: BOK keeps rates at all-time low in November
At its meeting on 26 November, the Bank of Korea (BOK) kept the base rate at its record low of 0.50%, in line with market expectations.
The Bank’s decision to hold came amid weak domestic activity, a deteriorating labor market and a tightening of social distancing restrictions. However, concerns over increasing household debt and house prices likely dissuaded the Bank from making any further cuts, while the tailwinds provided by solid exports and investment also alleviated the pressure for further easing.
In its press release, the BOK struck a dovish tone, stating it would maintain its accommodative policy on expectations of a weak recovery and low inflationary pressures driven by muted demand. However, there is little room for further rate cuts, with a strong majority of our panel seeing the BOK keeping rates unchanged until the end of next year. That said, the Bank may provide further monetary easing through other less conventional tools such as bond purchasing.
On the subject, analysts at Nomura commented:
“Given the government has pledged to maintain higher spending next year, we believe the BOK will be under pressure to support the expansionary fiscal policy. […] As the increased government spending will require the BOK to support the fiscal burden, we expect the BOK to conduct more bond-buying in a regular and predictable way in 2021.”
The next monetary policy meeting will be held on 15 January.