Amid growing concerns over COVID-19, South Korea’s key interest rate plunged below 1 percent for the first time in history as the central bank cut it by 50 basis points to a record low of 0.75 percent.
The decision came hours after the US Federal Reserve took the drastic step of slashing its benchmark interest rate to near zero to offset the economic fallout from the novel coronavirus.
“The US Fed in recent days lowered its interest rate by 150 basis points, which was a swift move,” BOK Gov. Lee Ju-yeol said at a press briefing held in line with its announcement.
BOK Gov. Lee Ju-yeol (Yonhap)
“It granted leeway for the BOK to take active measures,” he added in the briefing, which was livestreamed via YouTube.
The BOK’s decision was taken at an emergency monetary board meeting that kicked off at around 4:30 p.m.
Criticism had mounted that the Bank of Korea had hesitated to cut the base rate since the Fed slashed its policy rate hours earlier in its second emergency rate cut in less than two weeks. In its two emergency rate cuts, the Fed slashed its key rate by 150 basis points to a target range of zero to 0.25 percent.
The BOK, meanwhile, initially stayed put after it decided to keep its base rate steady at 1.25 percent in its latest monetary policy meeting Feb. 27.
It had apparently feared that the money would flow into the already-heated housing market, rather than to productive parts of the economy, if it further lowered the base rate.
This marks the third time that the central bank has slashed interest rates after emergency meetings. It slashed it twice, on Sept. 19, 2001, following the 9/11 attacks in the US and Oct. 27, 2008, during the global financial crisis -- by 50 basis points and 75 basis points respectively, after the US Fed slashed its rates by 50 basis points on both occasions.
The central bank’s hurried rate cut action came amid growing concerns on the new coronavirus pandemic.
On Friday, BOK Gov. Lee Ju-yeol attended an economic policy meeting chaired by President Moon Jae-in, along with other key economic-related ministers including Finance Minister Hong Nam-ki and Financial Services Commission Chairman Eun Sung-soo.
Lee’s presence at the presidential meeting -- the first since the country confirmed its first COVID-19 case in late January -- triggered speculation that Cheong Wa Dae added pressure on the central bank to speed up the base rate cut timeline in light of the recent circumstances.
“We should come up with unprecedented economic measures as this is an emergency situation,” Moon urged officials.
Earlier during the day, Asia’s fourth-largest economy saw its benchmark bourse Kospi and secondary Kosdaq halt temporarily in an urgent market stabilizing action. Shortly afterward, the BOK said that it is considering an extraordinary session of its rate-setting board meeting as early as this week.
With its next regular meeting slated for April 4, the BOK had been under mounting pressure to hold an emergency session within March to review the updated financial market situation and possibly carry out a base rate cut.
In its last meeting on Feb. 27, the BOK’s rate-setting panel froze the key interest rate at the current 1.25 percent, maintaining a wait-and-see approach despite the epidemic fallout. It also expressed disapproval against drastic emergency actions such as an extraordinary board meeting to move up the rate cut timeline.
“Due to the high level of uncertainties caused by COVID-19, it is yet premature to mention or consider an extraordinary session,” said Gov. Lee Ju-yeol last month.
But as the US Fed cut its own policy rate by an unusual 50 basis points in early March and the epidemic continued to spread across the globe, the BOK’s reserved stance faced criticism for being “complacent” in the face of the incumbent crisis.
By Bae Hyun-jung and Jung Min-kyung (email@example.com