"Additional Base Rate Cut, Limited Impact on Korean Stock Market"

Experts: "Already Expected Measure... Positive Effects Expected but Limited Impact"

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The Bank of Korea has lowered the base interest rate to 0.5% per annum, a 0.25 percentage point cut. Although liquidity will expand due to the rate cut, analysts say its impact on the stock market will be limited as it was an expected outcome.

The Monetary Policy Committee of the Bank of Korea held a plenary meeting on the 28th and lowered the base interest rate to a historic low of 0.5%. This is the second cut in two months, following the reduction to 0.75% on March 17. At that time, the MPC had sharply lowered the base rate from 1.25% to 0.75% to mitigate the economic shock caused by the novel coronavirus disease (COVID-19). The 0% base rate was unprecedented.

Nevertheless, the securities industry views the impact of the rate cut as limited. While liquidity expansion increases the possibility of a stock market rise, it is analyzed that it will not bring significant changes to the already bullish market atmosphere.

Yoon Chang-yong, Head of Research Center at Shinhan Financial Investment, explained, "The impact of the base rate cut on the domestic stock market is limited. If expectations for improvement in the real estate market grow, it could worsen domestic stock market supply and demand, but still, it will not have a major effect on foreign investor demand." Park Hee-chan, a researcher at Mirae Asset Daewoo, also said, "Since large-scale policy measures for economic stimulus are already underway, this is not seen as a special event. Rather, if the rate had not been cut, it would have had a greater impact on the stock market."

There is an opinion that continued expectations for COVID-19 vaccine development and the resumption of economic activities in major advanced countries are important. Kang Bong-joo, a researcher at Meritz Securities, said, "There are certainly positive effects such as reduced financing costs for marginal companies, but the overall impact is limited. The easing of lockdowns in major countries and the rebound of Samsung Electronics and SK Hynix will be more critical." Yoon also noted, "The possibility of a new US-China dispute triggered by COVID-19 and a second global pandemic expected around autumn are important variables for the domestic stock market. Additionally, the US presidential election and the government's New Deal policies are factors investors should watch closely."