Bank of Korea Holds Base Rate at 0.50%... Maintaining Record Low Level (2nd Report)

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] The Bank of Korea has kept the base interest rate at a record low of 0.50% per annum. Amid the severe spread of the novel coronavirus disease (COVID-19) domestically, the decision was driven by the judgment that a accommodative monetary policy must be maintained.

The Monetary Policy Board of the Bank of Korea held a plenary meeting on the 27th and decided to keep the base interest rate at 0.50% per annum. Since the rate is already at an all-time low, it was understood that lowering it further was not possible. Although the U.S. Federal Reserve's (Fed) base rate is at zero, and the effective lower bound for Korea's base rate (the minimum rate to which it can be lowered) is estimated to be around 0.25%, uncertainties remain, so additional rate cuts appear to be reserved as a last resort.

In March, when financial markets were shaken by the spread of COVID-19, the Bank of Korea sharply cut the base rate from 1.25% to 0.75%. Then, in May, it lowered the base rate once more.

The Bank of Korea's decision to hold the base rate was already anticipated by the market. According to a survey conducted by the Korea Financial Investment Association from the 11th to the 18th among 100 bond market participants, 99 out of 100 expected the base rate to be held steady.