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Markets

Bank of Korea to stand pat amid weak jobs sector

  • The bank in January flagged deep concerns about growing risks from a hot stock market rally and booming household debt.
22 Feb 2021

SEOUL: South Korea's central bank is expected to keep interest rates at a record low on Thursday, as a sluggish labour market keeps policymakers under pressure despite an export-led recovery and a rapid increase in asset prices.

All 27 analysts surveyed by Reuters saw the Bank of Korea (BOK) holding its base rate at 0.50%.

"With labour market conditions weak and the recovery likely to be slow-going, we do not expect the BOK to relinquish its accommodative stance any time soon," ANZ economist Krystal Tan said in a note.

South Korea's unemployment rate soared to a 21-year high in January, with the number of people employed falling at the sharpest pace in more than two decades, as curbs to contain the coronavirus continued to hurt the job market.

But a sustained recovery in exports has underpinned economic revival momentum.

Shipments for Feb. 1-20 period jumped 16.7% from a year earlier, data showed, faster than in January, thanks to a sales boost in major products and strong global demand.

Tan sees BOK's next rate move more likely to be up than down as "the central bank's focus will gradually shift towards financial stability risks," given favourable exports and the vaccine roll-out.

While all 21 analysts that provided long-term forecasts see the BOK standing pat throughout this year, Tan is one of the 12 analysts who expect the bank to raise rates by at least 25 basis points some time next year.

The bank in January flagged deep concerns about growing risks from a hot stock market rally and booming household debt.

It will announce its rate decision around 0100 GMT on Thursday and the governor's news conference will be broadcast at 0220 GMT.

While the BOK currently sees the economy growing 3.0% this year after shrinking 1.0% in 2020, it is expected to release revised economic projections at the upcoming meeting.