BoK in no rush to cut policy rate next Thursday, leave door open for future rate cuts: Scotiabank

The Bank of Korea (BoK) does not seem to be in any rush to cut its policy rate next Thursday (27 February) but will leave the door open for future rate reductions, according to the latest research report from Scotiabank.

BoK Governor Lee Ju-yeol attended a meeting chaired by Finance Minister Hong Nam-ki last Friday to discuss economic and financial impact from the spread of COVID-19 and steps to contain it, agreeing to work together to monitor financial markets and take joint measures if needed.

Central bank chief Lee Ju-yeol said last Friday that the 1.25 percent policy rate hasn’t reached the lower effective bound but the BoK should "carefully judge" whether further rate cut is needed as it would carry side effects.

He is aware that markets are expecting additional easing. Earlier on the same day, Governor Lee said the BoK will continue to maintain ample liquidity to help minimize the fallout from the coronavirus outbreak but added that liquidity management is separated from rate decision.

Meanwhile, Finance Minister Hong Nam-ki said Friday that it’s too early to adjust the official 2.4 percent growth forecast for this year. On February 13, he said the South Korean economy is expected to face a bigger economic impact from COVID-19 than that of the Middle East Respiratory Syndrome (MERS) outbreak in 2015, the report added.

The nations is planning to unveil measures to support exports as early as this week, according to Yonhap News Agency.

According to the data released by the US Census Bureau, the world's largest economy exported USD56.9 billion worth of goods to South Korea last year and imported USD77.5 billion from the nation, posting a trade deficit of USD20.6 billion with South Korea in 2019 after reporting a shortfall of USD17.8 billion the year before.

It is to be noted that the Trump administration said in a new regulation on February 4 that it will allow companies to pursue tariffs against foreign competitors if they can show those rivals have benefited from currency manipulation in their countries.

"According to the regulation, American companies will be able to pursue such tariffs as soon as April 6. We maintain our existing long KRW positions versus the USD and THB (new target 37.5) on early signs of stabilizing and improving coronavirus situation in China," Scotiabank further commented in the report.