MNI INSIGHT: No BOK Rate Cut Unless Downside Risks Grow

--Some Concerns Of Growing Financial Imbalances Across Korea

--Downside Risk Remain For Korea Economy, Including Coronavirus Spread

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Korea is unlikely to cut rates from current

historic lows unless trade relations between China and the U.S. worsen notably

and geopolitical risks grow in the Middle East, MNI understands.

     With signs the economy is stabilising, the BOK is more concerned over the

side-effects from the current low rate environment and how an additional cut to

a fresh record low would fuel imbalances, including a greater accumulation of

household debt and higher real estate prices in the major cities.

     The BOK cut its base rate to 1.25% in October 2019, matching the all-time

low seen between September 2016 to October 2017, and is reluctant to further

lower the benchmark to a fresh record low.

     --STEADY SHIP

     Korean exports are expected to improve in coming months as global demand

for IT-related goods picks up and government stimulus measures kick in, but the

BOK expects the overall economy to steady rather than find strong momentum.

     However, it remains aware that there are still downside risks, not least

the rise of the coronavirus and efforts to stem its spread could have negative

growth effects across Asia.

     In Korea, manufacturers account for about 30% of output according to the

Global Business Alliance (GBA), the peninsula's leading trade organisation, with

exports to China accounting for 30% of total overseas sales.

     Growth is seen coming in below 2% in 2020 according to the central bank,

below Korea's estimated potential rate of 2.5% to 2.6%.

     "GDP is forecast to grow at lower than 2% level this year, consistent

overall with the level projected in November," meaning no upward pressure on

inflation, the Bank said.

     --NEW BOARD MEMBERS

     The BOK voted 5-2 on Jan. 17 to keep monetary policy unchanged, with a

similar outcome expected at the next meeting, scheduled for Feb. 27.

     The term of four board members -- all of whom voted for unchanged policy in

January - see their terms expire in April. The government will appoint new

members on the current board's recommendations.

--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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