World News

Bank of Korea to stand pat for now, views split on further easing: Reuters poll

By Joori Roh

SEOUL (Reuters) – South Korea’s central bank is expected to keep its policy rate unchanged at its rate review this week, a Reuters poll showed on Wednesday, although views are split on whether there will be further easing this year.

The Bank of Korea (BOK) last year cut its key policy rate <KROCRT=ECI> in two steps to 1.25%, matching the record low last seen in late 2017. The central bank has stepped up monetary easing, joining the global trend, while the nation’s parliament approved a whopping 9.1% increase in fiscal spending to support cooling domestic demand and growth.

All 33 analysts surveyed by Reuters predicted the central bank’s seven-member board would hold the policy rate steady at 1.25% at its first policy meeting of the year on Friday.

Fourteen of the 33 respondents said they anticipated another cut within the year, with six predicting it would likely happen in the first quarter. Another 15, however, see no change for the year.

South Korea’s economic growth has tumbled in recent quarters on slowing global demand and the Sino-U.S. trade war due to its heavy reliance on the export of chips, cars and ships.

The majority of analysts see the central bank holding back on further easing for now, however, due to signs of economic recovery although persistently mild inflation has added pressure on policymakers to maintain easy policy.

“Given signs of economic recovery, easing external uncertainties amid an (imminent) U.S.-China trade deal and the government’s commitment to curb home prices, the Bank of Korea will likely stand pat,” said Shin Dong-soo, fixed-income analyst at Eugene Investment & Securities.

But Shin expects the central bank could cut rates once more should there be an unfavorable factor that could hurt the growth outlook.

South Korea’s trade-reliant economy has been among those worst-hit by disruptions to world supply chains from trade tensions, in a blow to business confidence and investment.

In November, the central bank downgraded its growth forecast for 2019 and 2020 to 2.0% and 2.3%, respectively, and the lowest in a decade even after rate cuts and a sharp budget expansion.

South Korean President Moon Jae-in on Tuesday pledged to step up property market regulations if current measures fail to calm surging home prices, just a month after the Seoul government announced a fresh set of property curbs, including lending restrictions.

At Friday’s meeting, investors would also focus on Lee’s remarks on the replacement of four board members, whose terms are due to end on April 20. Two of four members to be replaced are widely known to favor more expanisionary policy.

(Reporting by Joori Roh)