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S.Korea central bank sounds upbeat on economic outlook as it holds rates

11/25/2020 | 08:03pm EST

* BOK raises 2020 GDP outlook to 3.0% vs 2.8% before

* BOK sees 2021 inflation at 1.0%

* Governor Lee says export growth to offset virus fallout

SEOUL, Nov 26 (Reuters) - South Korea's central bank kept its key policy rate steady for a fourth straight meeting on Thursday and sounded upbeat on the economic outlook even as the country faced a third wave of coronavirus infections.

The Bank of Korea's (BOK) unanimous decision to keep its base rate at a record low of 0.5%, as widely expected, comes as policymakers also worry further easing could add fuel to a red-hot property market.

The central bank slightly raised its gross domestic product (GDP) forecasts for this year and next, but said monetary policy would remain accommodative as the economic outlook remained highly uncertain.

Governor Lee Ju-yeol said export volumes however had recovered to pre-pandemic levels and would help lead the economic rebound from a "low-point" in the second quarter.

"The worst situation seems to be over," Lee told a virtual news conference. "The negative impact from the resurgence of the coronavirus is still big, but we expect export growth to be better-than-expected and to offset that."

The BOK expects gross domestic product to shrink 1.1% this year from a previous forecast for a 1.3% contraction and sees GDP growing 3% in 2021, up from 2.8% previously.

Local markets showed muted reaction after the central bank kept its policy rate steady on Thursday.

Asia's fourth-largest economy returned to growth in the third quarter after its sharpest contraction in more than a decade, helped by fiscal and monetary stimulus.

Preliminary exports data showed global demand for South Korean products rebounded in November, while industrial output saw its sharpest year-on-year growth in seven months in September.

But a third wave of infections prompted the government to tighten social distancing rules this week, threatening the budding recovery. South Korea reported 583 new coronavirus cases on Thursday, the highest since March.

Governor Lee said the BOK was monitoring recent gains in the won, which could make exports more expensive and less competitive. He also said growing household debt was a concern, limiting the scope for further monetary easing.

Koo Hye-young, an analyst at Mirae Asset Daewoo Securities, expected rates to stay on hold through the end of 2022.

"Lee reiterating concerns about household debt sounded like he will be in wait-and-see mode," Koo said. "It also looks like Lee doesn't expect the resurgence of the virus to lead to a kind of sharp downturn in consumption we saw back in the second quarter."

The government has pledged 310 trillion won ($280.44 billion) in fiscal spending to help cushion the blow from the pandemic, while the central bank has cut rates by a total of 75 basis points this year. ($1 = 1,105.4000 won) (Reporting by Cynthia Kim; Editing by Ana Nicolaci da Costa)

© Reuters 2020
Stocks mentioned in the article
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MIRAE ASSET DAEWOO CO., LTD. -0.71% 9800 End-of-day quote.3.81%
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