The Central Bank of South Korea is meeting this Thursday to discuss the rate changes, but it is widely expected that the base rates will remain unchanged. Also, analysts believe that the rates are unlikely to be reduced this year due to the current economic situation in the country. South Korea which is Asia’s fourth-largest economy is in a spot as the exports which makes up to half of the economy’s growth has reduced to half and is set to reduce further with the first 20 days of February seeing an 11.7% reduction. There is not much cheer in the employment sector either, with the unemployment rate reaching a nine-year high in January. Also, people are rejecting low-paying jobs as there is an increase in minimum wages.
Due to the current economic situation, in a meeting in January the Bank of Korea reduced the growth outlook for this year after it hiked its rate in November 2018. About 11 economists were polled, and they all predicted that the Bank of Korea would keep the repurchase rate unchanged this week at the current rate of 1.75%. Most of the respondents also predicted that the Central Bank would pause the interest rates for the rest of the year despite the outlook being gloomy due to the ripple effect on businesses due to the China-US trade war.
Angela Hsieh who is an economist at Barclay’s Capital said that ‘Ongoing weakness in exports, as well as the soft labor market, are likely to keep most members’ stances cautious.’ The hike in interest rates in November last year was seen as a way to cool the property markets, and an economist at the Societe Generale said ‘Rate cut will still be very unlikely given the government’s harsh stance on the housing market.’
Meanwhile, the Governor of the Central Bank said that the discussion on interest rates is too early as there are fewer chances of a slowdown in the economy. Economist Angela Heish from Barclays said that Bank of Korea ‘will attempt to balance its rhetoric by highlighting the potential for a positive outcome from US-China trade talks, improved sentiment in financial markets and slower Fed normalization.’
Many other Central Banks have also paused their plans to tighten the monetary policy due to the slow economic growth. Recently, the Federal Bank of the US paused its rates cuts and adopted a cautious approach signaling that the tightening ends for now.
