[Economic Outlook] Employment Recovery Expected in March... BoK Base Rate Likely to Remain Unchanged

Easing of Household Loan Growth, Interest in Possible High-Ranking Official Reshuffle

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Moon Chaeseok] This week, Statistics Korea will announce last month's employment trends. After the number of employed persons in January decreased by nearly 1 million compared to the same month last year, the decline in February was halved, drawing attention to the March performance. The Bank of Korea is expected to decide on the base interest rate, with a high likelihood of maintaining the current rate.

Regarding the employment trends for March to be announced by Statistics Korea on the 14th, there is a strong possibility of a base effect since the COVID-19 situation was fully reflected in the indicators from March last year. This means the indicators could improve. The number of employed persons aged 15 and over was 25.818 million in January, down 982,000 from the same month last year, but in February it was 26.365 million, a decrease of 473,000 compared to February of the previous year. Since the decline was halved in one month, there is keen interest in how the March results will turn out.

The Monetary Policy Committee of the Bank of Korea is expected to maintain the current base interest rate of 0.5% at its meeting on the 15th. Since the consumer recovery trend is not clear, it is likely that the accommodative monetary policy will remain unchanged. As Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki stated, "We will pursue expansionary fiscal policy until the end of COVID-19," both monetary and fiscal policies are focused on supporting economic easing. Recently, the economy has been gradually improving, centered on exports and investment. Although prices are rising due to increases in oil and international raw material prices, the Bank of Korea still views inflationary pressure as insufficient to warrant a rate hike. If the rate is held steady, it will be the seventh freeze following July, August, October, and November last year, and January and February this year.

Prior to the Monetary Policy Committee meeting, the Bank of Korea will release its analysis of the 'March Financial Market Trends' on the 14th. The outstanding household loans at banks reached 1,003.1 trillion won at the end of February, surpassing 1,000 trillion won for the first time. Although the surge in unsecured loans has subsided, demand for housing-related loans remains high due to the moving season and rising jeonse (long-term deposit rental) prices, resulting in an increase of about 7 trillion won in household loans in February alone. Attention is focused on whether the pace of household loan growth slowed in March.

There is also interest in whether there will be a reshuffle of senior officials. This is because a cabinet reshuffle, including the replacement of the Prime Minister, could occur as early as mid-month. The successor to Prime Minister Chung Sye-kyun will influence appointments of other economic ministers such as the Deputy Prime Minister for Economy. Currently, names such as Park Jie-won, Director of the National Intelligence Service; Kim Boo-kyum, former Minister of the Interior and Safety; Won Hye-young, former Democratic Party lawmaker; and Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki are being mentioned. It is also highly likely that the successor to Minister of Land, Infrastructure and Transport Byun Chang-heum will be appointed in this reshuffle.