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BOK tipped to stand pat on key rate in 2017

South Korea's central bank is widely forecast to continue its stand-pat rate policy in 2017 due to the nagging issue of snowballing household debt and slowing economic growth, analysts said Wednesday.

The prediction comes as the Bank of Korea (BOK) is strongly tipped to leave the country's benchmark interest rate at 1.25 percent at its monthly rate-setting meeting on Thursday due to a possible US rate hike.

Seo Hyang-mi, an analyst from HI Investment & Securities Co., bet on the BOK's rate freeze, citing the high possibility of a US rate increase. "As the Federal Open Market Committee (FOMC) is strongly tipped to raise US interest rates, the BOK will find it difficult to conduct a rate cut."

In this context, many experts predict the central bank to leave the benchmark interest rate unchanged throughout next year.

"The BOK is expected to continue to freeze interest rates in the coming year," said Park Jong-yeon, an analyst at NH Investment & Securities Co. "Unlike America, South Korea needs a rate reduction, but it may not be that easy, considering concerns over a capital outflow and the household debt issue."

He projected the US Fed will cut the federal funds rate twice in the coming year, saying the FOMC will reduce the key rate on Wednesday (US time) and offer a rosy outlook for the world's largest economy.

Lee Seul-bi, an economist at Samsung Securities Co., echoed Park's view. "The BOK may find it hard to lower the key rate next year amid expectations of two US rate cuts and the lingering problem of household debt."

South Korea's household debt hit a record high of 1,257.3 trillion won (US$1.08 trillion) as of end-June, triggering concerns it may sap household spending and thus dent domestic demand, one of the key drivers of Asia's fourth-largest economy along with exports.

Some analysts, however, say that South Korea's central bank may reduce the policy rate once next year to prop up the slowing economy. "The BOK is highly expected to revise down next year's growth forecast in January, sparking calls for a rate cut. It may carry out a rate reduction once as early as March," said Park Hyeok-soo, a researcher at Daishin Economic Research Institute.

The BOK has retained its wait-and-see mode since June, when the central bank sent the benchmark rate to the record-low level, citing a need to support the sputtering economy. (Yonhap)

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