Bank of Korea (BOK) kept the policy rate stable on Wednesday as it tried to hold down the soaring property prices, even as it foresees the worst economic contraction in over 20 years due to the pandemic. The South Korea’s central bank kept the historic low rate of 0.5%, aligned with the expectation of all 34 economists in a media poll. The rates has been cut at a total of 75 basis points throughout this year, and boost bond buying purchases to help the economy from the fallout.
The decision comes as median home prices in Seoul have risen more than 50% in the past three years, and does not decelerate in the 2020 economic slump. The fourth-largest economy in Asia sank into recession in Q2, and forecasted to undergo more in the coming months if European and U.S coronavirus cases still rise, affecting economic activity and export demand.
Investors expect the central bank to disclose whether the bank may regularly buy treasury bonds to help the state economy, as local markets have the difficulty to absorb the state’s record debt sales of 167 trillion won planned this year and driving bonds yields higher.
Kim Sang-hun, an analyst at Hi Investment & Securities said that things to look out is whether BOK would buy the treasury bonds on a regular basis, as monetary easing and fiscal stimulus of more than 277 trillion won ($240.89 billion) has helped cushioning the economy from the pandemic-induced crisis.
The country’s exports increased for the first time in seven months in September, as the major trading partners have eased the lockdowns and resumed the business activity gradually. Nevertheless, BOK already said it expects the economy to shrink 1.3% in 2020, marking the biggest full year contraction for over two decades. South Korea’s GDP fell 3.2% in Q2 from the previous quarter, the biggest fall since 2008.