MNI INSIGHT: BOK Faces Tough Policy Decision; High Debt Worry

By Hiroshi Inoue

     TOKYO (MNI) - Although still a month out from its next scheduled policy

decision, the Bank of Korea is becoming increasingly stuck between a domestic

economy ravaged by the coronavirus outbreak and tentative signs of a recovery in

the outlook for IT-related goods, MNI understands.

     Bank officials are also looking at signs factories in China are slowly

resuming operations, although utilisation rates remain low.

     South Korea's exports picked up in February, rising 4.5% for the first gain

in more than a year. The upside was driven by better demand for IT-related

goods, as sales of auto products remain sluggish, although obviously that could

be hit as the virus impacts the global economy.

     Although February exports were brighter, the BOK can point to worsening

consumer and household sentiment as the impact of the virus spreads across the

peninsula as a reason to ease rates, although it is still concerned about the

build-up of household debt, currently at record-high levels.

     Another concern at the BOK that it isn't seen to bend to pressure from the

government. Korea's government announced a KRW16 trillion stimulus package on

Feb. 28, the day after the central bank somewhat surprisingly left rates

unchanged at a record-low 1.25%

     Following the rate decision, BOK Governor Lee Ju-yeol said the South Korean

economy could contract in Q1 because of the coronavirus impact, although he said

a rate cut will only come after a careful study of the impact.

     The BOK lowered its 2020 growth forecast to 2.1% from 2.3% in the November

forecast round and also its export growth forecast, which accounts for 40% of

GDP, to 1.9% from 2.2%.

     The BOK's next meeting is scheduled on April 9, less than a week before the

National Assembly elections on April 15, when all 300 seats in the body are up

for election.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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