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BOK hints at rate cut over Fed‘s emergency action

March 4, 2020 - 14:47 By Jung Min-kyung

BOK Gov. Lee Ju-yeol (Yonhap)

South Korea’s central bank on Wednesday decided to hold its base rate at 1.25 percent for the time being, but hinted at a possible rate cut following the US Federal Reserve’s emergency action on mounting COVID-19 fears.

The US central bank cut its base rates to a target range of 1 percent to 1.25 percent earlier in the day, in a move prompted by risks stemming from the novel coronavirus outbreak. This marks the first such emergency move since the 2008 financial crisis.

“The US Fed’s latest measures resulted in cutting its benchmark interest rate to a similar level to South Korea’s rate of 1.25 percent,” the BOK said in a statement.

“We will take such changes into consideration when operating the nation’s monetary policy from now on,” it added, hinting a possible rate cut in the future.

The BOK’s announcement comes as a result of an emergency meeting of ranking officials presided by BOK Gov. Lee Ju-yeol, which had abruptly transitioned from a lower-level meeting presided by Deputy Gov. Ryoo Sang-dai.

The central bank noted the limits of resolving the risks and impacts of the coronavirus on the financial market through monetary policy alone, highlighting the need to cooperate with the government.

It also reiterated its decision announced last month to support small and medium-sized enterprises by beefing up its financial support fund by 5 trillion won ($4.1 billion). Such direct support instead of slashing rates was deemed to be more effective, the BOK said.

After announcing its decision to stand pat, Lee said the central bank left its base rate unchanged based on the assumption that the coronavirus outbreak would be contained or subdued after peaking in March.

The BOK is expected to face another decision-making moment at the upcoming US Federal Open Market Committee meeting scheduled March 17-18, which may work as a platform for another rate cut.

The Hong Kong Monetary Authority lowered its base rate charged through the overnight discount window by 50 basis points to 1.5 percent, hours after the US Fed announced a rate cut of the same margin.

The BOK has been maintaining the interest rate at the record low of 1.25 percent since October when its seven-member monetary policy board made its second rate cut in three months as the economy showed signs of a recovery.

Korea’s coronavirus caseload stood at 5,328 as of Wednesday according to the Korea Centers for Disease Control and Prevention. So far, 32 people, mostly elderly patients with underlying illnesses have died here due to the disease.

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