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Central bank not cutting rates just for Wuhan crisis

It says the outbreak alone does not justify monetary policy shift
Jan 31,2020
Yoon Myun-shik, senior deputy governor at Bank of Korea, noted the possible effects of the Wuhan coronavirus on the economy, but he said that rates will be maintained for the time being.

“There are still uncertainties regarding the coronavirus, so it is a bit early to say how much it will affect the Korean economy,” said Yoon Thursday morning to reporters. But “it is likely that it will influence economic factors such as growth rate, inflation rate and current account.”

Six cases have been confirmed in Korea, with the most recent patients being identified Thursday.

When asked about the possibility the resulting weakness in consumer sentiment could lead to a base rate cut, Yoon said “it, too, is not certain yet.”

The next base rate decision is scheduled for the end of February.

The central bank cut the rate when severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS) affected Korea.

“We don’t cut rates due to single factors such as infectious diseases such as SARS and MERS. We evaluate various factors. When we cut rate back then, we had several other negative factors, such as economic stance and deflation,” Yoon noted.

In 2003 as MERS spread, the central bank cut the base rate from 4.25 to 4 percent the month after the outbreak started. With the SARS case in 2015, the central bank cut the key rate from 1.75 percent to 1.5 percent the month after the first patient was diagnosed.

Yoon said the meeting was held Thursday morning after the Federal Reserve decided to maintain its policy rate at 1.5 to 1.75 percent, in accordance with the market expectation.

“The policy rate announcement didn’t influence the U.S. stock market, but stocks slipped a little when Federal Reserve Chair Jerome Powell held a press conference,” Yoon said, noting the uncertainties expressed by Powell about China trade and the Wuhan virus.

“Korea’s market, in general, follows the U.S. market trend, so I believe the effect will be about the same.”

The Financial Supervisory Service (FSS) also discussed Thursday the possible impact of coronavirus on Korea’s economy.

“Since the virus became a major issue on Jan. 21, there has been a tendency to avoid risk, but the market expects, considering the extensive care China and other countries are paying to the issue, the negative impact won’t last too long,” the regulator said.

For preventive measure, the FSS said it would monitor the global markets real-time in cooperation with overseas offices and fortify contingency plans in case more cases are reported in Korea and local finance is affected.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]