Markets have priced in another interest rate cut for South Korea this week, but experts are mixed about the effectiveness of lower rates as uncertainties over the pandemic run high.

A poll by Maeil Business Newspaper on 10 economic experts showed that opinion was evenly divided between a cut and inaction.

South Korea’s central bank in March slashed its benchmark interest rate by half a percentage point to an all-time low of 0.75 percent, joining other major banks in the global emergency action to mitigate the economic shock of the coronavirus crisis.

The benchmark three-year government bond slipped Monday to a fresh low of 0.815 percent. It has been moving closer to the 0.75 percent base rate since earlier this month amid fears of a virus-triggered recession.

Exports plunged 24.3 percent in April against a year earlier, with outbound shipments in the first 20 days of May also down by 20.3 percent. Korea’s gross domestic product in the first quarter contracted 1.4 percent from the previous three months.

International and domestic organizations projected additional rate easing. State-run think tank Korea Development Institute called for a benchmark rate closer to zero to prop up the economy performing at its worst since the 1997-1998 Asian financial crisis.

One of the proponents for a rate cut in the Maeil poll was Ahn Dong-hyun, economics professor at Seoul National University, who expected the BOK to lower rates for “qualitative” easing. Shin Hwan-jong, research center head at NH Investment & Securities, said a rate cut would be necessary to back the state-sponsored bond purchase program.

But some were worried about thinning monetary ammunition.

Cho Young-mu, researcher at LG Economic Research Institute, warned that Korea doesn’t have much room to maneuver with its interest rate already at a record low. If rates must be lowered, he suggested baby-step cuts such as 10 basis points instead of the typical quarter-percentage point cuts.

Joon Won of Hyundai Research Institute was skeptical of further lowering rates when market conditions remain cold and uncertain.

Hong Seong-il, economic policy team manager of Korea Economic Research Institute, expected a rate cut to have limited impact given signs of stability in local financial markets.

Kim Jin-il, economics professor at Korea University, had a more practical reason for a no rate move, saying the monetary policy board is likely to stay pat as three members of its seven-member board have recently been replaced.

The BOK`s next rate-setting meeting is on July 16.

By Song Min-geun, Kim Hyung-joo and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]