SEOUL, Feb 12 – South Korea’s central bank is forecast to keep the policy rate unchanged in February but is likely to take action in coming months as rate cut pressure grows on a mix of downbeat economic data and a wave of global monetary easing, analysts said Thursday.
All 17 analysts surveyed by Yonhap Infomax, the financial news arm of Yonhap News Agency, projected the Bank of Korea (BOK) to keep the base rate on hold at its policy meeting on Tuesday. If the forecast is on track, it will extend the BOK’s wait-and-see stance to a fourth consecutive month.
The country’s policy rate has been standing at a record-matching low of 2 percent since October after the BOK cut the rate by a quarter percentage point each in August and October to support the government’s stimulus efforts.
“Governor Lee Ju-yeol said that the BOK needs to monitor the impact of the two rate cuts delivered in 2014. Distortions from the Lunar New Year also support a wait-and-see approach,” HSBC economist Ronald Man said.
In a press conference following the monetary policy committee’s Jan. 15 decision to freeze the rate, the top central banker distanced himself from market anticipation over a rate cut, saying that the base rate is “sufficient enough” and that using monetary policy is “inappropriate” at this point.
Some analysts cited the country’s ever-growing household debt, breaking 1,000 trillion won (US$905 billion) last year, as a factor that blocks additional rate cuts.
“One concern is that household debt is now growing too fast as a result of the rate cuts last year. Cutting rates further can only come if there is significant and sudden deterioration in the activity indicators. So far, there is no sign of this,” said Leong Wai Ho, an economist at Barclays.
Analysts, however, projected the central bank to take action in the first half as tepid growth and rate cuts by global central banks heighten pressure for an additional rate cut.
Five out of 15 analysts who submitted their forecast for end-March expected the BOK to cut the base rate next month. The case for a rate cut increased going forward, with 11 out of 16 analysts forecasting a rate cut by end-June.
HSBC’s Man said the move may come as early as next month.
“As data are expected to continue to show suppressed economic activity and private sentiment, we expect the central bank to respond and lower its policy rate by 25 basis points at its March 12 meeting,” he said, also noting how a handful of central banks have recently joined monetary easing.
Some still argued that the global move will not push the central bank to take action unless it clearly impacts the local financial market.
“Some say that the monetary authority will join the recent wave of global monetary easing. But unless it bolsters a stronger won, (the BOK) is unlikely to bow to the global easing stance,” said Kim Jong-soo, an economist at Taurus Securities.
Kim instead forecast the central bank to start hiking the rate in the fourth quarter following the U.S. Federal Reserve’s rate normalization and easing volatility in the global financial market. (Yonhap)