BoK: Further downgrades to growth outlook – ANZ

The Bank of Korea (BoK) kept its policy rate at 0.50% in an unanimous decision on Thursday. However, it lowered its growth outlook materially amid a domestic resurgence in virus infections. At press time, USD/KRW is trading around 1184, near daily lows.

Key quotes

“The BoK lowered its 2020 and 2021 growth forecast to -1.3% (from -0.2%) and 2.8% (3.1%), respectively. The adjustments to its CPI forecasts were more minor, to 0.4% (from 0.3%) for 2020 and 1.0 (1.1%) for 2021.”

“Governor Lee reiterated that the central bank will maintain its easing stance until there are signs of recovery. Notably, he stated that the BoK still has room for a rate cut, though he struck a cautious tone, noting the need to be careful and to consider any negative impact. He also stated that non-rate tools may be deployed if needed, but stopped short of sharing details beyond ruling out yield curve control for now. Interestingly, Governor Lee commented that between a rate cut and quantitative easing, it’s not clear which one the BoK currently favours.”

“We expect further policy support to be led by fiscal policy, with the BoK playing a complementary role by capping borrowing costs through ad-hoc government bond purchases.”