MNI PREVIEW: Bank of Korea Mulls Cut To Key Rate As Econ Slows

--Three New Board Members To Debut At May Meet

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Korea may lower its benchmark rate from the

current record low 0.75% at its May 28 meeting, with policymakers positing a cut

to 0.50% or 0.25% to help underpin the economy as both exports and household

spending slow.

     A cut is not a foregone conclusion, however, and relatively stable

financial markets and a modest recovery in consumer confidence could offer some

leeway for the BOK to stand pat. 

     Either way, officials will continue to monitor financial institutions, to

ensure non-performing loans don't pick up as the impact from the Covid-19

outbreak spread in a way that will threaten financial stability.

     Benchmark rates dipped below 1% back in March, when the BOK slashed rates

in the wake of cuts by the U.S. Federal Reserve. As rates move closer to 0%, the

bank says it will strengthen its research into non-standard monetary policy, but

no extra-ordinary measures are expected this month.

     In a joint move with the government, the BOK said on May 20 it was setting

up a KRW10 trillion special purpose vehicle to buy commercial paper directly

from the local debt market. The BOK will make loans worth KRW8 trillion on an

as-needed basis and another KRW1 trillion will come from debt issuance by the

Korea Development Bank.

     --OUTLOOK LOWERED

     The Korea Development Institute, a governmental entity, lowered its growth

forecast in mid-May to 0.2% from 2.3% made in just November". The KDI didn't

rule out the possibility of economic contraction this year, noting Korea had yet

to benefit from a recovery in production across China.

     Exports fell 24.3% y/y in April, widening from -0.2% in March and reversing

from +4.5% in February, and the country posted a deficit of USD946 million for

the first trade deficit for over eight year.

     The three new board members, Cho Yoonje, Suh Youngkyung and Joo Sangyong

all took office in late April and vote for the first time this week.

--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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