Bank of Korea to Hold Rate as Won in Focus: Decision Guide
(Bloomberg) — The Bank of Korea is set to extend its interest rate pause Thursday, with investors likely to focus on how the board assesses the challenges from a resurgence of the coronavirus, a strengthening won, and a political push to add jobs to its mandate.All 19 analysts surveyed by Bloomberg expect the Governor Lee Ju-yeol and his board to maintain the seven-day repurchase rate at 0.5% in its last scheduled rate decision of 2020. The BOK will also update its growth and inflation forecasts for this year and next.South Korea’s economy has been recovering from a pandemic-triggered slump, with rising exports and growing consumer confidence supporting the case for a rate hold. But the turnaround has been met with headwinds, as fresh coronavirus waves at home and abroad and a stronger local currency threaten the momentum.Here’s what to watch for on Thursday:Won AppreciationThe won has been among the region’s best performing currencies this quarter, buoyed by improving indicators at home and in China, the country’s biggest market. Gains were bolstered recently as foreign investors piled into the country’s stock market, spurring a spate of jawboning by authorities.The won traded at around 1,106 as of 1:15 p.m. in Seoul on Wednesday after touching 1,103.90 last week, the strongest since June 2018. The current level is already beyond the 1,133 cited by exporters as their threshold between profits and losses in a survey by the Korea International Trade Association.Korean Exporters See Won Already Beyond Their Pain Threshold “Lee had previously said won gains and the country’s exports were no longer correlated, and we’ll be closely listening to his remarks this week to see if any changes to that stance,” said Min Gyeong-won, an economist at Woori Bank in Seoul. “Given thin trading these days, even a slight shift in tone could trigger won weakness.”Employment MandateDespite an ongoing economic recovery, the job market continues to reel with hundreds of thousands of positions lost each month. That’s prompted some lawmakers to propose a revision to the BOK Act to add employment stability as a new mandate.At a recent parliamentary hearing, Governor Lee expressed doubts about the extent to which the BOK could support employment with its tools.Economic OutlookAny revision to the BOK’s growth outlook would depend on how it views the damage from the new local virus wave and tighter social distancing rules. The central bank in August expected the economy to contract 1.3% this year and rebound 2.8% in 2021, which would make it one of the least hit among major economies.Governor Lee has maintained there’s still room for another cut, but most analysts surveyed by Bloomberg expect the rate to be held through at least end-2021 as further easing would aggravate concerns over rising home prices and mounting household debt.Lee has so far offered few signs that the BOK is willing to adopt full-scale quantitative easing. Still, investors will be looking for clues on what steps the BOK might take should the economic toll grow.(Updates Bloomberg survey details and adds exporter report.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.