The Korea Herald

지나쌤

BOK likely to cut rate this week amid calls for more stimulus

By Jung Min-kyung

Published : March 15, 2020 - 15:57

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BOK Gov. Lee Ju Yeol (center left) and Finance Minister Hong Nam-ki (center right) wearing a face mask briefs President Moon Jae-in at Cheong Wa Dae on March 13, 2020. (Yonhap) BOK Gov. Lee Ju Yeol (center left) and Finance Minister Hong Nam-ki (center right) wearing a face mask briefs President Moon Jae-in at Cheong Wa Dae on March 13, 2020. (Yonhap)

South Korea’s central bank is likely to convene an emergency meeting of its monetary policy board this week to slash its interest rates to a record-low of 1 percent, amid growing calls to beef up economic stimulus against the novel coronavirus outbreak.

On Friday, Bank of Korea Gov. Lee Ju-yeol attended a special economic meeting related to coronavirus at Cheong Wa Dae, presided by President Moon Jae-in. Economy-related ministers including Deputy Prime Minister and Finance Minister Hong Nam-ki and Financial Services Commission Chairman Eun Sung-soo were present at the meeting as well.

The meeting strongly hinted a policy mix – a combination of monetary and fiscal policies – since it was the first time Lee attended such economic gatherings that kicked-off after the country confirmed its first COVID-19 case in late January.

With the US Federal Open Market Committee meeting scheduled for Tuesday and Wednesday, the emergency BOK gathering is expected to be held around the timeframe.

The BOK has been pressured to hop on the global bandwagon of slashing base rates in recent weeks, after it decided to keep its base rate steady at 1.25 percent in its latest monetary policy meeting on Feb. 27. It had said that direct support through fiscal measures would be more effective, while cutting its growth estimate for the local economy to 2.1 percent from the previous 2.3 percent in the same day.

But since then, the US Fed has cut interest rates in early March by a half a percentage point to a target range of 1 to 1.25 percent. On top of it, the COVID-19 was declared a pandemic by the World Health Organization and the virus’ potential threat to the global economy has grown substantially.

Experts project the BOK to cut the base rate by 25 basis points in its upcoming meeting.

“With the US Fed expected to carry out another rate cut this week, the BOK is likely to make its own move around the timeframe,” Shin Eol, an analyst at SK Securities said.

“But it is likely to slash its interest rates by only 25 basis points due to its cautious stance,” he added.

The BOK has slashed interest rates after emergency meetings twice -- on Sept. 19, 2001, following the Sept. 11 attacks in the US and Oct. 27, 2008, during the global financial crisis. It cut rates by 50 basis points and 75 basis points respectively, after the US Fed slashed its rates by 50 basis points in the previous days.

The BOK meeting is expected to be held in line with the end of the extraordinary parliamentary session on March 17, where the rival political parties agreed to pass the government’s extra budget bill of 11.7 trillion won ($9.6 billion)

But in recent days, lawmakers and politicians have been calling out to further beef up the extra budget allocated by the government to overcome the current pandemic situation.

The ruling Democratic Party said Thursday that it planned to pursue a plan to expand the extra budget to 18 trillion won.

The debate over temporary basic income scheme of handing cash to support citizens financially crippled by the spread of COVID-19 continues to brew as well.

Gyeonggi Province Gov. Lee Jae-myung last week echoed South Gyeongsang Gov. Kim Kyung-soo’s earlier proposal to hand every citizen 1 million won, which would cost the government 51 trillion won in total.

The so-called “basic income scheme under disastrous situations” has spurred criticisms from experts, saying the program’s temporary nature holds the risk of increasing national debt without any positive results.

By Jung Min-kyung (mkjung@heraldcorp.com)