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Bank of Korea to stand pat this week, rate hikes seen in 2022

  • But the economic fallout from the latest virus wave at home is still a worry.
13 Jan 2021

SEOUL: South Korea's central bank is expected to keep interest rates steady when it meets on Friday, as stabilising economic conditions allow policymakers to stay on the sidelines for now.

All 28 analysts surveyed by Reuters predicted the Bank of Korea (BOK) will keep its base rate unchanged at a record low of 0.50% at its first meeting of the year.

Among the 23 analysts who provided forecasts for end-2021, 20 saw the BOK standing pat throughout this year.

But 12 of 18 analysts who gave 2022 forecasts expected the bank to raise rates by at least 25 basis points some time next year.

The mix of an export-led recovery, subdued inflation and rising property prices suggest "there is no urgency for the BOK to either further cut rates or to tighten monetary policy in the near term," said DBS economist Ma Tieying.

Ma expects the BOK to stand pat until it raises rates in the third quarter of 2022.

South Korea's exports expanded at their fastest pace in 26 months in December, thanks to robust chip demand and improved global demand.

But the economic fallout from the latest virus wave at home is still a worry.

The nation's December unemployment rate surged to an 11-year high and the number of employed plunged at the fastest rate in over two decades, while inflation remained slow.

Asia's fourth-largest economy is seen shrinking 1.1% in 2020, the first contraction in 22 years, before expanding 3.0% this year, according to the BOK's latest economic projections.

The central bank will announce its rate decision around 0100 GMT on Friday and the governor's news conference will be broadcast at 0220 GMT.