The Bank of Korea on Thursday froze interest rates at 0.5 percent again, the record-low level they were fixed at last May. It maintained its growth forecast for the year at three percent but raised its outlook for inflation from one percent to 1.3 percent.
The BOK said the freeze, which was widely expected, is due to “private consumption, employment remaining weak despite rising global expectations of an economic recovery due to coronavirus vaccinations.”
The BOK’s monetary policy board said in a report, “Private spending remains weak due to the protracted lockdown and employment is falling.” It said the global recovery remains sluggish due to travel curbs amid the pandemic.
BOK Governor Lee Ju-yeol warned of rising yields of Korean and U.S. government bonds, which have sent stock markets tumbling. “An increase in market rates leads to a rise in lending rates, putting pressure on households and businesses with loans,” he said. “The stock market will also probably remain volatile for the time being.”
Bond yields continue to rise as governments around the world try to raise money for pump-priming measures to cushion their economies against the pandemic. This tarnishes the luster of sovereign bonds and causes yields to rise.
The Korean government plans to raise around another W20 trillion to fund coronavirus-relief payments and the U.S. another US$1.9 trillion (US$1=W1,109). Most of that will be raised by issuing bonds.
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