Bank of Korea defied some expectations and kept base rate unchanged at 1.25%, despite intensifying coronavirus outbreak in the country. The decision was not unanimous, though, as two board members voted for a cut.
Governor Lee Ju-yeo wide reaching rate cut is not the appropriate response to the outbreak at this instead. Instead, there should be targeted support for companies that are most affected. “A health security crisis is the cause of the current economic difficulties,” he said. “In a situation like that, micro support for self-employed businesses and companies in trouble is more effective than an interest-rate cut.”
Nevertheless, the central bank lowered this year’s growth forecasts from 2.3% to 2.1%. Lee said, “the revised outlook of 2.1 percent is based on the assumption that the new coronavirus (COVID-19) outbreak would peak out in March.” Further downgrade is possible is the outbreak lasts beyond Q1.