(Updated with quotes and market data)

The Bank of Korea checked itself from moving beyond last month’s extraordinary cut and mild quantitative easing through repo-based bond purchase program, although warning of a global recession and a growth in the zero range for Korea this year for the first time since 2009.

The Korean central bank on Thursday kept the rate target steady at 0.75 percent to study the work of the string of emergency fiscal and monetary expansionary actions over the last two months since the outbreak of the coronavirus (COVID-19).

“There is a strong possibility of a global recession. As (economic) troubles are common across the world, the impact on our economy will be much greater than past crises,” BOK Governor Lee Ju-yeol told the press.

Under the best-case scenario of easing in the COVID-19 crisis and normalization of business in the second quarter, the Korean economy could maintain growth and avoid a contraction, although achieving 1 percent would be difficult, he said.

The BOK on April 23 releases the preliminary first-quarter gross domestic product (GDP) data, which economists largely see a contraction. The Korean GDP growth had been less than 1 percent in 2009 – 0.8 percent – in the wake of the global crisis and contracted only once in history -5.5 percent in 1998 following the international bailout crisis in 1997.

If conditions worsen, “we will take necessary actions,” he said, suggesting the bank could push the rate target further below in the zero territory. In the Thursday rate-setting meeting, two members called for a 25-basis-point cut.

The BOK at an extraordinary meeting on March 17 slashed the benchmark rate by 50 basis points to a fresh all-time low of 0.75 percent. But market yields failed to come down, leading the central bank to experiment with “unlimited” liquidity aid through repos by promising to buy whatever orders in a weekly auction from an expanded scope of primary dealers and securities of collateralization until June.

The market, however, has been unsatisfied with the reserved actions, compared to the extraordinary and decisive moves from the U.S. Federal Reserve.

The three-year government bond yield gained 0.8 basis point to 1.032 percent and the 10-year government note yield 2.6 basis points to 1.537 percent by midday Thursday.

The central bank is also mulling a milder version of a special purpose vehicle the U.S. Federal Reserve has launched to absorb corporate bonds to lend out money to securities companies collateralized by their holdings of corporate bonds to help ease liquidity squeeze.

The scope of securities eligible for repo collateralization was further extended to include more state papers like Industrial Finance Debentures, Small and Medium Industry Finance Debentures, Export-Import Finance Debentures as well as mortgage-backed securities (MBS) issued by Korea Housing Finance Corp. and Korea Deposit Insurance Corp.

The new measures will take effect from April 14 until March 31, 2021.

By Cho Jeehyun

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