SEOUL — South Korea’s central bank is expected to lower its policy rate to a record low on Thursday, the third cut in the current easing cycle, a Reuters poll showed, to offset the impact on Asia’s fourth-largest economy from the fast-spreading coronavirus.
The trade-reliant economy, which was among those worst-hit by trade tensions, is faced with an extra hurdle as the virus outbreak disrupted world supply chains and global demand.
Sixteen of 26 analysts surveyed by Reuters predicted the Bank of Korea’s (BoK) seven-member board would cut the policy rate to 1% at its February meeting in a preemptive move.
Another four analysts expect the central bank to cut rates at least by May.
In January, only six of 29 analysts saw a cut in February after the central bank struck a more upbeat tone at its last policy meeting due to improving trade conditions and a resilient domestic environment.
Earlier this month, BoK Governor Lee Ju-yeol said the central bank would be cautious about further policy easing, as economic indicators needed to be assessed carefully to gauge the impact from the virus.
But trade data in the first 20 days of February showed there was a slump in Chinese demand with overall sales per working day also tumbling.
“Exports per working day during the first 20 days of February fell 9.3%, which shows the negative spillover from the virus spread on South Korean exports have started materializing,” said Lee Mi-seon, fixed-income analyst at Hana Financial Investment.
“As the number of confirmed cases sharply increased over the past week, economic conditions in South Korea have turned into a grave situation,” she added.
The Seoul government raised its infectious disease alert to its highest level on Sunday, while it reported the eighth death and 231 new cases on Monday, which brought the national tally to 833.
South Korean President Moon Jae-in said on Monday the government should start reviewing whether a supplementary budget should be drawn up to head off the impact of the virus outbreak on the economy.
Economists are concerned the virus outbreak will hit economic growth in both the first and second quarters.
South Korea’s economy grew 2.0% for the whole of 2019, the slowest pace in 10 years, even after two rate cuts last year and a sharp increase in the nation’s budget.
The virus impact was also seen cooling demand at home as the consumer sentiment index in February fell to 96.9 from 104.2 a month earlier. This was the lowest reading in six months and the biggest monthly fall since June 2015, Bank of Korea data showed on Tuesday.
The central bank said on Monday it will e-mail and text message registered reporters when it announces its rate decision on Thursday and broadcast the press conference live to limit crowds and contain the spread of the coronavirus. — Reuters