BOK maintains 0.50% annual interest rate for the first time this year… “Support for economic recovery tax”

Input 2021.01.15 09:40 | Revision 2021.01.15 09:46

Corona re-proliferation aftermath, poor employment indicators, etc. “The need for economic response still remains”
BOK, outlook for freeze interest rate within the year… Lee Joo-yeol conveys concerns about K-shaped recovery

The Bank of Korea held its first meeting of the Financial Monetary Committee this year and decided to keep the base rate at 0.50% per year. This is because the economic recovery excluding exports is insignificant as the aftermath of the re-proliferation of the novel coronavirus infection (Corona 19) continues. The BOK is expected to continue its easing monetary policy stance to support the economic recovery as it is concerned about the intensifying situation of asset concentration.

The Bank of Korea’s Financial Services Commission held a meeting on the direction of monetary policy on the 15th and decided to freeze the standard interest rate at the current level of 0.50%. The BOK has decided to maintain its benchmark interest rate at its record low for the eighth month since May last year.

The BOK believes that the current economic situation still needs to be supported through easing monetary policy. Governor Lee Ju-yeol showed a somewhat pessimistic view of the economy, mentioning the polarization of the’K-shaped economic recovery’ in the New Year’s address of the BOK and the’Great Reset’ in the new year’s society in the financial sector.

Even if we look at the actual economic indicators, it is difficult to say the economic recovery except for exports. Exports in December of last year increased by 12.6%, showing a double-digit increase for the first time in two years and two months since October 2018 (22.5%).

On the other hand, consumption and employment are still difficult due to the reinforced social distancing following the re-proliferation of Corona 19. According to the National Statistical Office, the number of employed people last year was 26.94,000, a decrease of 218,000 from the previous year, recording the largest decline in 22 years since 1998 (-1276,000 people) right after the financial crisis. In addition, retail sales in November decreased 0.9% from the previous month, continuing a decline for two consecutive months following October (-1.0%).

In the market, it is expected that the BOK will continue to freeze this month as well as this year. According to a survey conducted by Chosun Biz this month ahead of the Financial Services Commission, 9 out of 10 macroeconomic and bond experts at domestic securities companies expected an interest rate increase after 2022 after the interest rate freeze within this year. The other one withheld the answer.

The U.S. Federal Reserve System (Fed) also clearly drew a line for early tapering (a gradual reduction in quantitative easing). Fed Chairman Jerome Powell dismissed the previous day (local time) at an online seminar hosted by Princeton University, saying, “Now is not the time to talk about the exit.” He stressed that the timing of the rate hike is not very close.