Bank of Korea seen holding rates this week and throughout 2021

11/25/2020 | 08:04am

(The Nov. 24 story is corrected to remove attribution from headline)

By Joori Roh and Jihoon Lee

SEOUL (Reuters) - South Korea's central bank is expected to keep its policy interest rate unchanged when it meets on Thursday, as signs of an economic recovery and rising household debt outweigh concerns about a third wave of coronavirus infections.

All 22 analysts surveyed by Reuters predicted that the Bank of Korea (BOK) will keep its base rate steady at a record low of 0.50%, after cutting a total 75 basis points this year to support the coronavirus-ravaged economy.

Among the 19 analysts who provided forecasts for end-2021, 18 saw the BOK standing pat by end of next year, with only one predicting a rate hike in the final quarter of 2021.

"The pressure for additional monetary easing has been reduced substantially, as the third-quarter GDP and October monthly indicators suggest that the economy has emerged from recession and entered a moderate recovery," said DBS economist Ma Tieying.

"Given that output gap remains deeply negative and inflation outlook is muted, we think the BOK would wait till 2022 to start normalising interest rates," she added.

Thursday's policy review is the last of the year and comes as the country announced tighter social distancing rules to blunt the third wave of coronavirus infections.

Growing household debt remains a key risk, as was stated in the October meeting minutes.

The nation's bank lending to households in October increased by a net 10.6 trillion won ($9.54 billion), the second-biggest monthly jump on record, led by mortgage borrowing and credit loans for stock investments.

The market's focus is on the central bank's economic outlook revision after it sharply downgraded this year's growth in August to a 1.3% contraction - the worst since the 1998 financial crisis. It currently sees the economy bouncing back 2.8% in 2021.

The central bank will announce its rate decision around 0100 GMT on Thursday and the governor's news conference will be broadcast live on YouTube starting at 0220 GMT.

($1 = 1,110.7300 won)

(Reporting by Joori Roh; Editing by Simon Cameron-Moore)

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