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Central bank holds rates despite Fed

Mar 05,2020
Korea’s central bank on Wednesday maintained its base rate at 1.25 percent despite a 50 basis point cut by the U.S. Federal Reserve, but it left open the possibility of a cut soon.

The Bank of Korea held an emergency meeting Wednesday morning chaired by Governor Lee Ju-yeol after the U.S. Federal Reserve lowered its target range to between 1.0 and 1.25 percent on Tuesday.

“The latest rate cut by the Federal Reserve left the U.S base rate of 1.0 to 1.25 percent as low as our own, which is 1.25 percent,” said Bank of Korea Gov. Lee after an emergency meeting convened on Wednesday morning.

“In regard to our next monetary policy, such changes should be taken into consideration.”

The Fed had made a big cut to its base rate at an emergency meeting held Tuesday, with the Federal Reserve Chairman Jerome Powell saying that the coronavirus is posing “evolving risks to economic activities” and that the Fed will “act as appropriate to support the economy.”

It is the first time for the Fed to make a surprise cut since January 2008, when the financial crisis broke out. It is also the first big cut since 2008, other changes limited to 25 basis points.

“There is a limit to resolving the impact of Covid-19 just by monetary policy,” Gov. Lee said Wednesday. “It has to be considered in line with the government’s policy as well.”

The central bank said the economic fallout from the virus outbreak should be handled with measures targeting affected businesses rather than cutting the rate, which could result in a rise in real estate prices.

The bank acknowledged Wednesday that the situation is more critical than it was just a short time ago.

“When we devised the economic outlook in February, it was under the premise that the crisis would fade out from the second quarter based on multiple advice from the experts,” an official from the central bank said.

“However, from the end of last week, the spread of Covid-19 has rapidly increased globally, leading to greater uncertainty.”

The Fed’s rate cut Tuesday reassured local analysts that the central bank would go for a rate cut at the April 9 meeting,

“There is a high possibility that the Bank of Korea will cut the rate once in April,” said Kim Jin-myung, an analyst at Hanwha Investment & Securities.

“We have adjusted our estimate for 2020 from a 25 basis point cut to 50 basis point cut,” said Kim Ji-man, an analyst at Samsung Securities.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]


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