BOK expected to hold key rate in April: poll

By KH디지털2
  • Published : Apr 6, 2015 - 11:54
  • Updated : Apr 6, 2015 - 11:54

South Korea's central bank is forecast to keep its benchmark interest rate unchanged this month following a surprise rate cut in March that sent the policy rate to a record low of 1.75 percent, analysts said Monday.

Nineteen out of the 20 analysts and economists surveyed by Yonhap Infomax, the financial news arm of Yonhap News Agency, projected the Bank of Korea to hold the base rate at 1.75 percent at its upcoming policy meeting on Thursday.

The respondents said that while room for another rate cut lingers, the BOK is likely to take a wait-and-see stance this month to gauge the impact of previous rate cuts and the speed of household debt growth that continues to surge amid a low-rate trend.

"We think that pressure on the central bank from the government to loosen the monetary policy further will be limited over the next month or two. This will give BOK officials more time to monitor economic developments, both domestic and external, before easing further," said Ronald Man, an economist at HSBC.

The central bank has faced growing pressure on further loosening its 2 percent base rate that has remained unchanged since October amid a series of global easing moves aimed at shoring up sluggish growth.

Some analysts cited growing household debt as a key factor that will restrain the central bank from implementing a back-to-back rate cut in April.

"High household debt is a factor that will make the BOK wary of aggressive policy loosening," said Krystal Tan of Capital Economics.

South Korea's already bulky household debt has been sharply rising in tandem with two rate cuts in the second half of last year that prompted home buyers to cash in on the low interest rate.

Household loans in South Korea, Asia's fourth-largest economy, totaled 1,089 trillion won as of end-December, with mortgage loans accounting for 42 percent of the total. In February, household loan growth at local banks more than doubled from a year earlier.

Half of the polled analysts, however, expected the central bank to further cut the rate in the next few months after lowering its growth forecast for the Korean economy on Thursday.

The BOK, which updates its growth and inflation forecast every three months, is expected to revise down an earlier forecast made in January when it slashed its growth forecast to 3.4 percent from 3.8 percent and inflation forecast to 1.9 percent from 2.4 percent.

Ten out of 19 analysts forecast the base rate to fall to a new record low of 1.5 percent by June. One analyst did not submit a forecast for the end of the second quarter.

"A downward growth revision is likely to stoke anticipation for an additional rate cut. A rate cut may happen in May or June if the economic recovery remains delayed and the won strengthens," said Kim Yu-kyum, an analyst at LIG Investment & Securities.

But some, like Korea Investment & Securities economist Lhee Jung-bum, projected the central bank to stand pat until the end of the year as lending continues to soar.

"The monetary policy committee will be prudent in further cutting the rate given the significant cost of a rate cut and insufficient policy room regarding monetary policy," he said, adding that low oil prices and the currency war are irregular issues that are soon expected to subside. (Yonhap)