Bank of Korea holds fire on rates, seen staying put in 2021

[SEOUL] South Korea's central bank kept its policy rate unchanged on Friday as a partial recovery in Asia's fourth-largest economy allowed policymakers to stay on the sidelines.

The Bank of Korea kept the base rate steady at a historic low of 0.5 per cent, as expected by all 28 analysts in a Reuters poll.

The BOK is expected to maintain its easy monetary policy in 2021 even with the economy accelerating away from last year's pain brought on by the coronavirus.

Twenty of 23 analysts polled see the bank holding rates through the end of this year, as policymakers will want to guarantee the recovery is stable before they even consider tightening policy.

Hanging over policy deliberations are the third wave of the coronavirus currently sweeping the country, a weak jobs market and tepid inflation.

"As mentioned in BOK's previous monetary policy statement, it is vital for the bank to maintain current easy policies to support growth," said Yoon Yeo Sam, an analyst at Meritz Securities, who sees the BOK increasing rates only in the second half of 2022.

"The vaccine rollout schedule is an uncertainty but the downside risk (to growth) is not high enough to cut the growth forecast of around 3 per cent for this year."

The manufacturing-heavy economy is seen shrinking 1.1 per cent in 2020, the first contraction in 22 years, before expanding 3.0 per cent this year, according to the BOK.

While an export recovery is gaining traction, the outlook for employment and inflation is more clouded.

In his New Year message, Governor Lee Ju Yeol said he is in no hurry to take the foot off the gas to help the economy recover from the coronavirus pandemic, especially as new virus variants and global trade risks cloud the export-reliant economy.

Governor Lee's news conference will be broadcast at 0220 GMT.

REUTERS