BOK may hold off further rate cut

16 December, 2019 12:00 AM printer

SEOUL: Following signs of a thaw in US-China trade tension, speculation is building that South Korea may slow its pace of monetary easing, in step with the growing possibility of a global economic upturn.

Though the world’s top two economies face a bumpy road ahead, their latest reconciliatory move is expected to ease uncertainties—especially for Asia’s fourth-largest economy, which is highly dependent on trade, report agencies.

After Washington and Beijing announced their phase one agreement Friday to reduce some $160 billion worth of US tariffs on Chinese products, US Treasury Secretary Steven Mnuchin described the recent development as “very good for global economic growth.”

“We expect (the phase one deal) will be fully executed in January. And then we get to phase two,” he said Saturday at the Doha Forum in Qatar.

With the US and China accounting for 35.5 percent of total trade as of last year, Korea has suffered a heavy blow from the prolonged trade tension between the two countries.

According to the Bank of Korea and Korea Customs Service, Korea’s accumulated export volume as of end-November came to $496.7 billion, down 10.7 percent from a year earlier.

While the BOK assessed that the US-China factor has dragged down Korea’s gross domestic product growth by 0.4 percentage point this year, the Korea Development Institute predicted that Washington’s additional tariffs—if they had been imposed—would have further cut growth by 0.34 percentage point.

Amid the continued downward pressure on the economy, the BOK has cut the country’s key interest rate twice this year, once in July and then in October.

After the latest move, which brought the figure to a record low of 1.25 percent, the central bank said it would keep watch on the market, waiting for the easing actions to have the intended effect.

But as key indicators such as exports and investment continued to dwindle throughout November, speculation has grown that monetary policymakers might inevitably carry out another cut next year.

Bank of Korea Gov. Lee Ju-yeol chairs the Monetary Policy Board meeting on Nov. 29, when the bank froze the policy rate at the current record low of 1.25 percent.