Stacks of import-export cargo containers at South Korea's largest seaport, located in Busan, 450 kilometers southeast of Seoul on June. 4. (Yonhap)
The South Korean central bank on Thursday held its policy rate unchanged at a record low of 0.5 percent, while slightly revising up this year's economic outlook, amid growing concerns over a winter wave of coronavirus infections.
As expected, the monetary policy board of the Bank of Korea (BOK) voted to leave the base rate steady in this year's final rate-setting meeting.
Driven by signs of a modest recovery in exports, the BOK revised up this year's economic growth outlook to 1.1 percent contraction, compared with a previous forecast of a 1.3 percent retreat.
The BOK expected Asia's fourth-largest economy to grow 3 percent next year, faster than a previous forecast of 2.8 percent expansion for 2021.
The BOK predicted that consumer prices may grow 0.5 percent this year, slightly up from its previous forecast of 0.4 percent gain.
BOK Gov. Lee Ju-yeol told reporters that the economy may have hit the bottom in the second quarter, but it is too early to say whether the central bank will consider tightening its monetary policy.
"It is not the time to discuss the normalization of monetary policies," Lee said, citing lingering uncertainties over the ongoing resurgence of COVID-19.
The upbeat forecast was based on an assumption that the global spread of the virus would stabilize in the middle of next year or in the second half of next year, Lee said.
The recent escalation of local virus cases is expected to have a short-term impact on local consumption, but its impact may be smaller than the first wave seen in late February, Lee said.
The Korean currency's recent ascent against the U.S. dollar is "not desirable," Lee said, adding that the BOK will take foreign exchange stabilization measures, if necessary, against herd behaviors.
In a statement, the BOK said the nation's economy showed signs of a modest recovery, but the pace of recovery is challenged by the recent resurgence of infections globally.
"The Korean economy has continued to recover at a modest pace.
Although the recovery in private consumption has been slow and the correction in construction investment has continued, facilities investment has started to recover and the improvement in exports has continued," the BOK said.
"Looking ahead, the board sees global economic growth and global financial markets as likely to be affected largely by the severity of the resurgence of COVID-19 and the status of vaccine development, as well as by national policy responses and their effects," it said.
In late August, the BOK froze the key rate as economic uncertainty heightened amid a flare-up in new coronavirus cases. In July, the bank left the rate unchanged as well.
To bolster the pandemic-hit economy, the BOK slashed the key rate to the all-time low of 0.5 percent in May after delivering an emergency rate cut of half a percentage point in March.
Analysts said economic uncertainty has increased as daily new virus cases have recently stayed above 300, although the nation has largely brought the outbreak under control.
On Thursday, South Korea reported 583 new coronavirus cases, the highest since early March, when the nation grappled with the first wave of virus infections.
The central bank said private consumption is expected to recover at a slower-than-expected pace this year due to the virus fallout.
South Korea's economy contracted 3.2 percent in the second quarter from three months earlier after shrinking 1.3 percent on-quarter in the January-March period.
But the nation's economy returned to modest growth in the third quarter, marking the first quarterly expansion since the coronavirus pandemic began, as exports showed signs of improvement.
In the July-September period, the economy grew 1.9 percent from the previous quarter.
South Korea's low inflationary pressure and rising housing prices also appeared to prompt the BOK board to stand pat, analysts said. (Yonhap)