Central bank holds rates steady, adjusts up GDP forecast

Bank of Korea Governor Lee Ju-yeol speaks at an online press briefing on Thursday. [BANK OF KOREA]

Bank of Korea held the base rate steady at 0.5 percent on Thursday, maintaining the record-low figure for the sixth straight month as Covid-19 uncertainty lingers.

The central bank revised up the growth outlook for this year as well as for next year by 0.2 percentage points, but refused to say that the recovery trend is fully underway in Korea amid a rapid resurgence of Covid-19 confirmed cases.

The bank's renewed growth estimates are minus 1.1 percent for 2020 and 3 percent for 2021.

Korea had only recorded two down years, the first in 1980 when the economy contracted by 1.6 percent, and in 1998 after the Asian financial crisis when the GDP fell by 5.1 percent.

"The worst seems to have passed, hitting the bottom in the second quarter," said central bank Gov. Lee Ju-yeol to the press in an online briefing Thursday. "But there seems to be no sign of Covid-19 subsiding both in Korea and overseas. Considering that, we cannot say that recovery trend is fully underway in Korea."

The seven-member monetary board unanimously voted to hold the rate at the current level, the central bank said.

The bank's outlook and decision on the key rate were based on the premise that Covid-19 infection numbers will ease starting from the latter half of next year in Korea and a vaccine will be rolled out in the country after the first half of next year.

Revising up the growth outlook was largely backed by steady recovery in exports as manufacturing, including both IT and non-IT companies, performed well despite the pandemic.

Exports as of Nov. 20 were $31.3 billion, which is 11.1 percent more than the same period last year. Korea’s exports fell on year for six months through August before turning around in September. In October, it recorded minus again due to fewer working days that month.

By sector, outbound shipment of chips jumped 21.9 percent year-on-year as of Nov. 20 and automobiles up by 11.9 percent during the same period.

The record-low base rate is likely to be maintained for a while longer.

Gov. Lee said the bank currently has no plan to raise the base rate despite concerns over skyrocketing household debt and real estate prices as uncertainty from Covid-19 still lingers in the market, and more liquidity might be needed.

"Rise in household debt is inevitable in the process of rolling out a money-easing policy," Lee said.

"It is however worrisome that the household debt is increasing at a rapid pace although economic impact derived from Covid-19 is starting to ease a little."

Korea's household debt increased 4.6 percent in the first quarter on year, followed by 5.2 percent in the second quarter and 7 percent in the third quarter.

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