South Korea central bank cuts 2020 GDP outlook, open to more stimulus to fight virus

September futures on three-year treasury bonds initially rose, but later retreated as Lee sounded cautious about the possibility of more rate cuts.

The BOK is walking a tight rope as it tries to balance the need for more stimulus with the risk that further rate reductions may encourage more cheap borrowing and worsen a home buying frenzy. Property prices have risen rapidly, particularly in Seoul, despite several cooling measures.

The pandemic pushed South Korea's export-led economy into its worst recession in over 20 years and analysts worry this could drag into the third quarter as the government considers imposing the highest level of physical distancing.

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Lee expected exports to rebound in the second half of the year but only gradually as global demand still recovers from the coronavirus fallout.

South Korea had been more successful than others in containing the virus, managing to avoid a full-blown lockdown, but suffered a setback this month with a church outbreak which spread to a political rally.

The policy review comes as the government and opposition are debating a fourth extra budget to bolster the 277 trillion won ($233.82 billion) worth fiscal stimulus pledged this year