MNI PREVIEW: BOK Likely To Hold But Economic Outlook Uneven

The Bank of Korea will likely keep its policy rate unchanged at a record low 0.5% on Wednesday as the economy improves but its view on the outlook is likely to remain cautious given the resurgence in Covid-19 infections across the country, MNI understands.

Financial markets aren't pricing in any policy move ahead of the meeting even though BOK Chairman Lee Juyeol said in August that there is room for a rate cut.

However, there is speculation that the BOK will expand unconventional measures in future to lower long-term interest rates, although some board members continue to be concerned about financial imbalances, including the rise in real estate prices caused by its easy policy, the latest minutes showed.

EXPORTS RISE

Underlining the economic recovery, exports rose 7.7% y/y in September, the first rise in seven months and at the fastest pace since October 2018.

Exports of electronics increased 11.8% due to solid demand for computers, mobile phones, and semiconductors while automobile exports rose 23.2%. It was the first increase in 23 months for both categories. The latest trade data also showed the drag from the external sector is weakening.

Despite the improvement, the view on exports remains cautious as South Korea trails Taiwan in shipments of IT-related goods.

MIXED GDP VIEW

The central bank has raised its 2020 growth forecast to 0.4% from 0.3% but lowered its 2021 forecast to 1.0% from 1.1%.

The government-run Korea Development Institute forecasts 2020 GDP growth at -1.1%, down from 0.2% in May, and next year's growth at 3.5%, down from 3.9%.