Asia Economy

South Korea's central bank keeps rates unchanged, awaits effects of last easing

Key Points
  • South Korea's central bank kept the policy interest rate unchanged at record lows on Thursday, as expected, counting on last month's emergency easing to support the economy as it reels from the coronavirus pandemic.
  • The Bank of Korea slashed interest rates by 50 basis points to a fresh low of 0.75% on March 16, in its largest policy easing since the global financial crisis, and has subsequently flagged a move to less orthodox policy.
  • South Korea's economy is heading for a contraction in the first half after the country's manufacturing activity fell at its fastest pace in 11 years in March.
A South Korean national flag (left) and a Bank of Korea flag fly outside the central bank's headquarters in South Korea, on January 15, 2015.
SeongJoon Cho | Bloomberg | Getty Images

South Korea's central bank kept the policy interest rate unchanged at record lows on Thursday, as expected, counting on last month's emergency easing to support the economy as it reels from the coronavirus pandemic.

The Bank of Korea slashed interest rates by 50 basis points to a fresh low of 0.75% on March 16, in its largest policy easing since the global financial crisis, and has subsequently flagged a move to less orthodox policy.

Fifteen of 20 economists surveyed by Reuters expected the BOK to stand pat on Thursday.

June futures on three-year treasury bonds were 0.04 points lower immediately after the rate decision, as some traders pared expectations for further easing.

South Korea's economy is heading for a contraction in the first half after the country's manufacturing activity fell at its fastest pace in 11 years in March.

Virus fears made South Korean consumers the most pessimistic in more than a decade, while exports began shrinking, as the coronavirus ravaged the global economy and supply chains.

South Korea has been bringing the epidemic under control. This week, it began reporting about 50 new coronavirus cases per day for the first time since its peak in late February, with the national tally at 10,384 as of midnight Tuesday.

But as the pandemic raises the prospect of a global recession, weakness in overseas demand for Korean goods is set to worsen in the coming weeks.

"Asia's heavily export-dependent economy still remains at risk from the so far unrestrained global spread of the disease, which is denting exports," said ING economist Prakash Sakpal, who sees the bank slashing rates by another 50 basis points in the current quarter.

Governor Lee Ju-yeol is due to hold a news conference at around 0220 GMT, which will be livestreamed.

South Korea's government on Wednesday said it will expand stimulus to follow the 100 trillion won ($82 billion) rescue package to save companies hit by the coronavirus and put a floor under crashing bond markets.

Thursday's rate review was the last for four of the seven voting board members at the BOK, as their terms expire on April 20.

The bank is expected to announce nominations for new board members, who need to be appointed by President Moon Jae-in.