The Bank of Korea yesterday cut its growth forecast and held its policy rate at a record low amid mounting pressure on policymakers to take more action to counter the economic hit amid the COVID-19 pandemic.
The South Korean central bank maintained its seven-day repurchase rate at 0.5 percent, as predicted by all 22 analysts surveyed by Bloomberg.
The bank said it now expects the economy to shrink 1.3 percent this year, far worse than the 0.2 percent contraction it forecast in May.
The bank’s hold on rates underscores the balancing act it faces, as it remains wary of adding stimulus that could further fuel property gains while the economic toll from the pandemic becomes evident.
Bank of Korea Governor Lee Ju-yeol said that there is still room to cut rates more, but caution is needed as there could be side effects from further reductions and the central bank has other policy tools.
It would purchase government bonds should yields become volatile, Lee said, but he did not offer details on the scale and timing of such action.
“Disappointment apparently grew about direct bond purchases as the market digested Lee’s comments,” said Theo Huh, an analyst at Samsung Futures Inc. “The governor is being seen as passive about market stabilization.”
South Korea’s 10-year bond yield rose slightly to 1.44 percent as of 2:09pm in Seoul, having declined earlier.
The won appreciated 0.1 percent to 1,185.55 per US dollar.
In a statement released after the decision, the central bank said that uncertainties around the growth path are “very high” and the board would keep policy accommodative as the pandemic saps demand-side inflationary pressure.
In its updated forecasts, the bank said its sees inflation picking up slightly to 0.4 percent, from 0.3 percent earlier.
“The cut in the growth forecast speaks to falling demand,” SK Securities economist An Young-jin said. “The elevation in the inflation projection, however, reflects gradual price increases among supply-side factors such as commodities and oil after some extreme slides earlier this year.”
So far this year, the bank has cut its benchmark rate by 75 basis points to blunt the impact of the pandemic, in addition to supplying liquidity and purchasing bonds to stabilize markets.
The government has also implemented three extra budgets this year, the biggest stimulus of its kind on record.
Still, the bank lowering its projection by a significant margin shows that it sees stimulus falling short of offsetting the fallout from the pandemic.
For now, Lee offered little guidance other than reiterating the central bank’s previous stance on bond purchases.
Lee also said that he is not considering measures such as yield-curve control at the moment.
Any further stimulus would have to be carefully implemented as not to run counter to efforts by the South Korean government to curb property prices, including a series of regulations on home purchases and ownership.
Semiconductor shares in China surged yesterday after Reuters reported the US had ordered chipmaking giant Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) to halt shipments of advanced chips to Chinese customers, which investors believe could accelerate Beijing’s self-reliance efforts. TSMC yesterday started to suspend shipments of certain sophisticated chips to some Chinese clients after receiving a letter from the US Department of Commerce imposing export restrictions on those products, Reuters reported on Sunday, citing an unnamed source. The US imposed export restrictions on TSMC’s 7-nanometer or more advanced designs, Reuters reported. Investors figured that would encourage authorities to support China’s industry and bought shares
FLEXIBLE: Taiwan can develop its own ground station equipment, and has highly competitive manufacturers and suppliers with diversified production, the MOEA said The Ministry of Economic Affairs (MOEA) yesterday disputed reports that suppliers to US-based Space Exploration Technologies Corp (SpaceX) had been asked to move production out of Taiwan. Reuters had reported on Tuesday last week that Elon Musk-owned SpaceX had asked their manufacturers to produce outside of Taiwan given geopolitical risks and that at least one Taiwanese supplier had been pushed to relocate production to Vietnam. SpaceX’s requests place a renewed focus on the contentious relationship Musk has had with Taiwan, especially after he said last year that Taiwan is an “integral part” of China, sparking sharp criticism from Taiwanese authorities. The ministry said
US President Joe Biden’s administration is racing to complete CHIPS and Science Act agreements with companies such as Intel Corp and Samsung Electronics Co, aiming to shore up one of its signature initiatives before US president-elect Donald Trump enters the White House. The US Department of Commerce has allocated more than 90 percent of the US$39 billion in grants under the act, a landmark law enacted in 2022 designed to rebuild the domestic chip industry. However, the agency has only announced one binding agreement so far. The next two months would prove critical for more than 20 companies still in the process
CHANGING JAPAN: Nvidia-powered AI services over cellular networks ‘will result in an artificial intelligence grid that runs across Japan,’ Nvidia’s Jensen Huang said Softbank Group Corp would be the first to build a supercomputer with chips using Nvidia Corp’s new Blackwell design, a demonstration of the Japanese company’s ambitions to catch up on artificial intelligence (AI). The group’s telecom unit, Softbank Corp, plans to build Japan’s most powerful AI supercomputer to support local services, it said. That computer would be based on Nvidia’s DGX B200 product, which combines computer processors with so-called AI accelerator chips. A follow-up effort will feature Grace Blackwell, a more advanced version, the company said. The announcement indicates that Softbank Group, which until early 2019 owned 4.9 percent of Nvidia, has secured a
RSS