Earlier-than-expected rate cut grows plausible amid coronavirus

Weighed by the escalating impact of COVID-19, South Korea’s central bank hinted Friday that it may lean toward an earlier-than-expected policy rate cut as early as within this month.

“Members of the Monetary Policy Board are currently contemplating the necessity to hold an extraordinary panel meeting,” the Bank of Korea said in a release.

The monetary policy institution’s latest move came as Asia’s fourth-largest economy saw its stock market nosedive amid investor skepticism, triggering the operator to temporarily halt the trading of both the main bourse Kospi and secondary Kosdaq.

With its next regular meeting slated for April 4, the BOK has been under mounting pressure to hold an emergency session within March to review the updated financial market situations and possibly carry out a base rate cut.

In its last meeting on Feb. 27, the BOK’s rate-setting panel froze the nation’s key interest rate at the current 1.25 percent, maintaining a wait-and-see approach despite the epidemic fallout. It also expressed disapproval against drastic emergency actions such as an extraordinary board meeting to move up the rate cut timeline.

“Due to the high level of uncertainties caused by COVID-19, it is yet premature to mention or consider an extraordinary session,” said Gov. Lee Ju-yeol last month, in answer to a related question.

But as the US Fed cut its own policy rate by an unusual 50 basis points in early March and the epidemic continued to spread across the globe, the BOK’s reserved stance faced criticism for being “complacent” in the face of the incumbent crisis.

Also, responding to the steep rise in treasury rates upon market opening, the BOK held a separate emergency meeting earlier on the day under the chairmanship of Deputy Gov. Yoon Myun-shik.

“Keeping close watch on the steeply rising treasury rates and other bond market situations, the BOK plans to take relevant measures to stabilize the market when necessary,” the bank said.

By Bae Hyun-jung (tellme@heraldcorp.com)