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Bank of Korea Holds Rate as Recovery Faces Fresh Virus Surge

EconomyApr 14, 2021 09:09PM ET
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© Reuters. Bank of Korea Holds Rate as Recovery Faces Fresh Virus Surge

(Bloomberg) -- The Bank of Korea stood pat on its record-low interest rate as it seeks to sustain the economy’s recovery momentum amid rising coronavirus cases.

The South Korean bank kept its seven-day repurchase rate at 0.5% on Thursday, a decision predicted by all 20 analysts surveyed by Bloomberg.

The country is on the verge of rising virus cases turning into a fresh wave, with the government warning of tighter curbs should infections continue to increase. While the economy’s outlook is still relatively bright, helped by exports and extra fiscal spending, a worsening outbreak and a shortage of vaccines are raising concerns that the recovery may not spread more broadly across the economy.

“Exports in particular have been robust while the recent approval of a supplementary budget will reduce the onus on monetary policy to boost the economy,” Mitul Kotecha, senior emerging-markets strategist at TD Securities in Singapore, said before the decision. “Despite the better outlook, it is highly unlikely that the BOK will move to tighten policy in the next few months.”

BOK Governor Lee Ju-yeol said last month that the economy is likely expanding faster than the central bank’s 3% projection in February, while seeking to dispel any speculation of an early tightening. The central bank’s updated quarterly outlook is due in May. Lee is expected to offer his latest views on growth and inflation at a briefing later Thursday.

Korea has seen some signs of the export-led recovery reaching domestic sectors, with employment rising and consumers turning optimistic for the first time since the start of the pandemic. But the latest rise in coronavirus cases close to 700 on Thursday is threatening to derail a nascent revival of consumption and employment, and entrench a K-shaped recovery.

Financial stability is also increasingly on the minds of the BOK board, suggesting any further easing to aid the recovery is unlikely. A fast increase in household debt has led to soaring home prices that exacerbate economic disparities and raise the risk of a bubble. After liquidity pumped into markets helped buoy traditional financial assets, volatility is rising in cryptocurrency markets as well.

©2021 Bloomberg L.P.

Bank of Korea Holds Rate as Recovery Faces Fresh Virus Surge
 

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