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BOK faces mounting pressure to reduce key interest rate
By Korea HeraldPublished : July 10, 2012 - 19:46
HONG KONG (Yonhap News) ― Korea’s central bank is facing mounting pressure to ease its monetary policy as the global economy continues to struggle, several investment banks said Tuesday.
“A potential downward revision to growth forecasts by the Bank of Korea would strengthen the case for monetary easing,” said Ronald Man, economist at HSBC.
To sustain the country’s growth, Seoul policymakers must do more to support domestic demand, since international trade, which has traditionally fueled the economy, is expected to remain sluggish, HSBC said.
However, the investment bank did not expect the rate cut to take place on Thursday when the central bank’s Monetary Policy Committee convenes, saying South Korean companies and households still have access to an ample supply of liquidity.
Barclays also expected the BOK will move toward monetary policy easing with inflationary pressure retreating and gross domestic product growth decelerating.
Last month, South Korea’s consumer price index gained just 2.2 percent from a peak of 4.7 percent in August 2011.
Meanwhile, the South Korean Ministry of Strategy and Finance slashed its official 2012 GDP growth forecast from 3.7 percent to 3.3 percent. The BOK has recently signaled that it may revise its growth forecasts down for the second time in four months.
“We believe there is a growing likelihood that the BOK will lower its benchmark policy rate from 3.25 percent, which has been unchanged since June 11 of last year,” said Ha Sun-mok, an analyst at Barclays.
Other investment banks such as Goldman Sachs forecast the central bank may move to cut its policy rate once in the third quarter of 2012, changing their previous view that the central bank won’t change the key rate for a while.
The weaker business activities and job numbers in the U.S. will prompt policymakers to cut 25 basis points in August from the current 3.25 percent, it predicted.
South Korea kept the policy rate at 3.25 percent last month for the 12th straight month, in a bid to sustain economic growth without triggering inflationary pressure.
“A potential downward revision to growth forecasts by the Bank of Korea would strengthen the case for monetary easing,” said Ronald Man, economist at HSBC.
To sustain the country’s growth, Seoul policymakers must do more to support domestic demand, since international trade, which has traditionally fueled the economy, is expected to remain sluggish, HSBC said.
However, the investment bank did not expect the rate cut to take place on Thursday when the central bank’s Monetary Policy Committee convenes, saying South Korean companies and households still have access to an ample supply of liquidity.
Barclays also expected the BOK will move toward monetary policy easing with inflationary pressure retreating and gross domestic product growth decelerating.
Last month, South Korea’s consumer price index gained just 2.2 percent from a peak of 4.7 percent in August 2011.
Meanwhile, the South Korean Ministry of Strategy and Finance slashed its official 2012 GDP growth forecast from 3.7 percent to 3.3 percent. The BOK has recently signaled that it may revise its growth forecasts down for the second time in four months.
“We believe there is a growing likelihood that the BOK will lower its benchmark policy rate from 3.25 percent, which has been unchanged since June 11 of last year,” said Ha Sun-mok, an analyst at Barclays.
Other investment banks such as Goldman Sachs forecast the central bank may move to cut its policy rate once in the third quarter of 2012, changing their previous view that the central bank won’t change the key rate for a while.
The weaker business activities and job numbers in the U.S. will prompt policymakers to cut 25 basis points in August from the current 3.25 percent, it predicted.
South Korea kept the policy rate at 3.25 percent last month for the 12th straight month, in a bid to sustain economic growth without triggering inflationary pressure.
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Articles by Korea Herald
