The Bank of Korea (BOK) kept the benchmark interest rate frozen at the current level of 0.75 percent per year on April 9. However, BOK Governor Lee Joo-yeol suggested that there is still room for a rate cut next month by saying that the effective lower limit may be lowered depending on how developed countries decide on interest rates.
The central bank also decided to push forward with its plan to stabilize the corporate bond market. Yet it changed its plan to directly purchase corporate bonds and decided instead to buy bonds to be issued by state-run banks.
The central bank’s bond purchasing is normally limited to government bonds and government-guaranteed bonds. Yet it decided to acquire bonds issued by state-run banks to supply additional liquidity to the economy. It is the first time since 2008 that the central bank expands the scope of bonds it purchases.
If the Bank of Korea buys bonds from state-run banks, it helps them issue bonds at lower interest rates. These banks use the funds raised through bond issuance to purchase corporate bonds. The BOK also plans to actively purchase government bonds.
To expand its bond purchasing activity, the central bank revised the open market operation regulations. The amendment allows it to purchase bonds issued by Korean Development Bank, Industrial Bank of Korea, the Export-Import Bank of Korea and Korea Housing Finance Corp.
Meanwhile, the BOK governor forecast that it will not be easy for the Korean economy to achieve 1 percent of economic growth due to the spread of the pandemic.