MNI STATE OF PLAY: BOK Seen Unmoved By High Property Prices

The Bank of Korea is wary of the spike in property prices due to its prolonged easy policy but a rate hike is unlikely given the fragility of the economic recovery and surging virus infections.

While acknowledging that this year's recovery will be faster than expected, BOK Chairman Lee Juyeol has also said that South Korea's current economic conditions don't warrant any adjustments to monetary policy settings, indicating the central bank will stand pat when it meets this week.

The policy interest rate has stayed at a record low 0.5% since May 2020.

Property prices across Korea rose by 10% y/y in February, the fastest pace since 2007, as speculative investment surged amid low interest rates. Price gains have been especially high in the greater Seoul area.

Bank officials continue to watch asset price trends as other indicators improve.

SERVICE SECTOR RECOVERY

The unemployment rate fell to 4.0% in February from a 21-year high of 5.4% in January as service sectors hardest hit by the coronavirus continued to recover.

Exports rose 16.6% y/y in March for the fifth straight rise, accelerating from +9.5% in February, thanks to solid global demand for semiconductors and will continue to be supported by the stronger global growth that the International Monetary Fund expects for this year.

However, resurgent virus cases have prompted caution. South Korean Prime Minister Chung Sye-kyun said on Friday that the country will extend current social distancing rules for three more weeks, prohibiting private meetings among five or more people.

The IMF recently forecast the global economy would grow 6.0% this year, higher than its earlier estimate of 5.5% in January. Its World Economic Outlook also raised South Korea's GDP forecast for this year to 3.6% from 3.1% earlier.