[Economic Outlook] Government Announces Comprehensive Economic Measures... Focus on Monetary Policy Committee's Base Rate Decision

Comprehensive Measures Include Rent Support for Small Business Owners

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government plans to announce a comprehensive economic stimulus package to revive the frozen economic sentiment caused by the spread of the novel coronavirus infection (COVID-19). The Bank of Korea will hold a Monetary Policy Meeting (Monetary Policy Committee) to decide whether to adjust the base interest rate.

◆ Announcement of package measures including rent support for small business owners = The government will announce a comprehensive economic stimulus package related to COVID-19 this week. On the 21st, Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki said, "We are reviewing what form of support the government can provide regarding rent for small business owners." He added, "We are also reviewing measures to stimulate production, consumption, investment, and exports."

The government is preparing measures by mobilizing all available policies under the recognition of an economic emergency. On the 18th, President Moon defined the current situation, where the economy has been directly hit by COVID-19, as an "emergency economic situation" and ordered related ministries to take extraordinary measures.

◆ Will the Bank of Korea adjust the base interest rate at the Monetary Policy Committee? = The Bank of Korea will hold the Monetary Policy Committee on the 27th to decide whether to adjust the base interest rate. Previously, in June 2015, when MERS was spreading, the Bank of Korea surprised the market by lowering the base interest rate from 1.75% to 1.50% per annum, despite expectations that it would be difficult to lower rates due to household debt burdens. However, there are also opinions that the decision to lower the rate will be reviewed in April after observing the spread of COVID-19.

Bank of Korea Governor Lee Ju-yeol said on the 14th, "It is difficult to gauge how much the COVID-19 situation will spread its impact on our economy and how long it will last," adding, "It is still too early to predict the domestic economic impact."

◆ Announcement of industrial activity trends including production, consumption, and investment = Statistics Korea will announce the industrial activity trends for January on the 28th. Major indicators of industrial activity such as production, consumption, and investment increased for two consecutive months in November and December. Attention is focused on whether the triple increase trend will continue in January. Industrial activity trends are broadly classified into four categories: industrial trends, consumption trends, investment trends, and economic trends. Investment trends include details such as the facility investment index, domestic machinery orders, construction performance, and construction orders.

As of December last year, the coincident index of economic conditions, which indicates the current economy, and the leading index of economic conditions, which predicts future economy, both rose simultaneously for the first time in 35 months.