South Korea’s Moon Jae-in flags steps for virus-hit economy, boosting rate cut expectations

South Korean President Moon Jae-in speaks during his New Year press conference at the presidential Blue House in Seoul, on Jan 14, 2020. PHOTO: AFP

SEOUL (REUTERS) - South Korea President Moon Jae-in said on Tuesday (Feb 18) the government should make an all-out effort to cushion the economic impact from China's coronavirus outbreak, boosting expectations of further monetary easing.

"(The government) shouldn't quibble over whether anything is unprecedented or not, rather, we should take every possible measure we can think of on the table to deploy them," Moon said in a cabinet meeting.

The fast-spreading coronavirus has disrupted world supply chains and business activity in a blow to global growth and demand for South Korean goods.

Moon said the economy is in an emergency situation and needs a boost to stimulate domestic demand.

South Korea's 3-year treasury bond futures sharply extended gains after Moons' remarks as investors speculated stimulus measures being rolled out could include an interest rate cut when the Bank of Korea meets on Feb 27.

In January, the BOK voted 5-2 to keep its benchmark rate steady at 1.25 per cent, standing pat for a second meeting following two reductions in July and October last year.

Moon's comments could add pressure on the central bank to back government policies in the run up to the April 15 general election.

In a January survey by Reuters, 14 of 33 analysts saw one more BOK cut through 2020 while 15 saw no change.

In 2015, South Korea drew up a supplementary budget to help cushion the economy from the effects of an outbreak of Middle East Respiratory Syndrome (Mers).

Moon is among a growing number of leaders pledging measures to shore up regional economies.

On Tuesday, Hong Kong leader Carrie Lam said the government would increase handouts to tackle the coronavirus outbreak to HK$28 billion (S$5 billion) from HK$25 billion pledged previously, to ease the impact on the Chinese-ruled city's battered economy.

Lam last week had said the government would give one-off payments to businesses across the city and the Hospital Authority.

China over the weekend unveiled plans for reducing corporate taxes and fees, and letting banks run up more non-performing loans.

Singapore is expected to unveil a large stimulus package in its Budget on Tuesday to mitigate the hit from the epidemic.

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