Bank of Korea Cuts Key Rate to 0.75%

The Monetary Policy Committee of the Bank of Korea held an extraordinary meeting on March 16 and cut the key rate from 1.25 percent to 0.75 percent. The key rate fell below 1 percent for the first time in history.

The South Korean government is expecting that the benchmark rate cut and its supplementary budget will be of great help in dealing with the impact of COVID-19. The size of the supplementary budget is estimated at 11.7 trillion won or more and the National Assembly is expected to pass the budget bill on March 17. The government is working on additional measures to mitigate the impact, including another supplementary budget.

Still, experts are doubtful of the effect of such measures. “The benchmark rate cut has been carried out with the key rate already low and the Bank of Korea’s decision was mainly because the Fed did so,” said Chung-Ang University professor Lee Jeong-hee, adding, “The ongoing economic difficulties are not because of the lack of market liquidity, which means the effect of the benchmark rate cut will be rather limited.”
 

“Although the supplementary budget is likely to be effective to some extent, the monetary policy will act as a signal of stability rather than leading to immediate effects,” said Yonsei University professor Cho Sung-hoon.