+ A

Central bank may hold extraordinary meeting this week

After havoc in stock and bond markets, a rate cut is a possibility
Mar 16,2020
The Bank of Korea may hold its first extraordinary monetary board meeting in 12 years next week following recent turmoil in stock and bond markets globally and as benchmark interest rate in the United States seem set for a dramatic cut - possibly to zero.

With both the real economy and the financial markets taking hits from the coronavirus outbreak, members of the monetary policy board at the central bank on Friday discussed the need to hold an interim monetary meeting.

A meeting of this sort has not been held by the Bank of Korea since October 2008.

If the extraordinary meeting is held, it will probably be convened after the National Assembly’s scheduled approval of the government’s 11.7 trillion won ($9.7 billion) fiscal stimulus package on Tuesday.

Timing of that sort would signal broad policy coordination, which is being demanded by the markets.

The U.S. Fed’s Federal Open Market Committee meets on Wednesday.

Analysts believe that rates in the United States could be cut by as much as a full percentage point to zero, following the half point move on March 3. The Bank of Japan is slated to hold the monetary board meeting on Thursday.

Korea’s central bank has been more cautious than U.S. monetary authorities as one of the major concerns in Korea is a speculative bubble that appears to be developing in the property market.

The Bank of Korea’s policy board held rates at 1.25 percent at its regular meeting last month despite market expectations for a cut by at least 25 basis points.

Central bank Gov. Lee Ju-yeol expressed at the time the need for “selective microeconomic policy” rather than a broad rate cut.

Sentiment shifted significantly last week after the Dow Jones Industrial Average fell 9.99 percent on Wednesday as a sense of crisis gripped markets globally. A bank official said that the possibility of an extraordinary meeting became a subject of discussion from Thursday.

“The effect of cutting the base rate in real economy is less than in the past, but it still has powerful influence on the capital market,” said analyst Park Jung-woo from KTB Investment & Securities.

“Monetary policy should come first to prevent any possible financial crisis that could derive from capital stringency.”

A big cut is not expected as the benchmark rate is already at a record low.

“If the central bank cuts the policy rate one more time, the country is stepping on a road that has been never walked before,” said Cho Young-moo, a researcher from the LG Economic Research Institute.

“The extraordinary meeting should announce a rate cut of no more than 25 basis points. The bank has to maintain room for any additional rate cut in the future.”

Shares in Korea plunged last week. On Friday, for the first time ever, trading in both Kospi and Kosdaq stocks were halted. The Kospi lost more than 8 percent at one point during the day before rebounding to 3.43 percent down at the close.

BY JIN EUN-SOO, HAN AE-RAN [jin.eunsoo@joongang.co.kr]