Asia Economy

South Korea's central bank holds rates at record low amid push to curb home price surge

Key Points
  • The Bank of Korea has held the base rate steady at a record low of 0.5%, it announced in a text message, in line with the forecasts of all 30 economists polled by Reuters.
  • The rate is at its lowest since the central bank adopted the current system in 1999, having slashed a total of 75 basis points since March this year to fight the economic fallout from the coronavirus pandemic.
  • The central bank has been working in tandem with the government to extend liquidity to businesses hit by the health crisis but is wary of rising debt and high property prices.
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South Korea's central bank kept the benchmark interest rate unchanged on Thursday, as policymakers remain wary of further easing amid the government's drive to cool property prices.

The Bank of Korea held the base rate steady at a record low of 0.5%, it announced in a text message, in line with the forecasts of all 30 economists polled by Reuters.

The rate is at the lowest since the central bank adopted the current system in 1999, having slashed a total of 75 basis points since March this year to fight the economic fallout from the coronavirus pandemic.

The central bank has been working in tandem with the government to extend liquidity to businesses hit by the health crisis but is wary of rising debt and high property prices.

Soaring apartment costs in Seoul despite more than 20 rounds of cooling measures have put policymakers in a bind.

"Further cuts are unlikely, in our view, as the Korea economy experienced the worst of the shock in the second quarter, and housing prices continue to rise amid ample liquidity provided by earlier cuts," said Park Chong-hoon, head of research at Standard Chartered Bank Korea.

While the red-hot property market means rate cuts will have to wait, analysts say the BOK could signal how aggressively it would soak up the new supply of government bonds when Governor Lee Ju-yeol holds his press conference from 0220 GMT.

South Korea is issuing a record amount of treasury bonds this year to fund extra budget outlays to cushion the economic impact of the pandemic.

With inflation seen benign and job growth sluggish, a total of 24 analysts who provided forecasts for end-2020 predict interest rates will stay at a record low of 0.50% through the end of this year.

South Korea has recorded just above 13,500 coronavirus cases so far and 289 deaths, government data shows.