MNI STATE OF PLAY: BOK Holds Rates, Weighs Pandemic, Inflation

The Bank of Korea on Thursday warned of uncertainty over the outlook for the economy on the latest increase in coronavirus cases as it kept monetary policy unchanged, maintaining its base rate at a historical low of 0.5%.

"In this process the Board will judge whether it is appropriate to adjust the degree of accommodation while thoroughly assessing developments related to COVID-19, changes in the pace of growth and inflation, and the risk of a buildup of financial imbalances," the BOK said.

The decision had been widely expected as seen in MNI's story published Wednesday. The next policy meeting is scheduled on Aug. 26, after the release of GDP for the second quarter on July 27.

"The Board will continue to conduct monetary policy in order to sustain the recovery of economic growth and stabilize consumer price inflation at the target level over a medium-term horizon, while paying attention to financial stability," a statement issued by the BOK said.

HOUSING PRICES, EASY POLICY

Bank officials are concerned about high housing prices and prolonged easy policy, but they are now weighing those elements against the potential impact of the spread of coronavirus on economic activity.

It also said, "The Board will maintain an accommodative stance of monetary policy as there remain uncertainties posed by the virus, although the Korean economy is expected to continue its recovery and inflation to remain at a high level for some time."

But the BOK warned, "Household loan growth has remained high, showing a record level on a first-half basis, and housing prices have continued to increase rapidly in all parts of the country."

APPROPRIATE TIMING

BOK Governor Lee Juyeol has flagged future rate hikes, saying that the bank should normalise its monetary policy in an appropriate timing if the economy continues recovery.

He also said that the bank stands ready to scale down its easy policy amid accelerating inflation rate and growing financial imbalances.

OUTLOOK, COVID-19 CASES

As for the outlook for economy, the BOK said, "exports and investment will sustain their buoyancy, while private consumption is forecast to temporarily weaken affected by the coronavirus resurgence but then return to the path of recovery supported by the execution of a supplementary budget. GDP growth this year is projected to be around 4%, consistent with the forecast in May."

The government imposed its strictest social distancing rules in Seoul for two weeks from Monday and daily cases hit a new record high of 1,615 on Wednesday.