SEOUL: After a surprise rate cut in June, the market consensus for this month is Korea’s central bank will hold its current 1.2-5 percent key interest rate steady. As the Bank of Korea gears up for a monetary policy meeting scheduled for Thursday, analysts say the central bank has never lowered the key rate for two straight months.
They add the BOK will want to take time to gauge the impact of a government stimulus package announced late last month. But when the timeline is expanded to the end of the year, there are lingering expectations for another rate trim.
While the country’s main growth engine, exports, have dropped for a year and a half, experts say several uncertainties, including the recent agreement between Korea and the U.S. to deploy an advanced missile defense system to Korea, continue to threaten the country’s growth.
“Uncertainties in the global economy, especially after the rise in geopolitical tensions after the THAAD deployment decision by the U.S. and South Korea, exports to China and the negative sentiment among Northeast Asian countries could have a negative effect on Korea’s trade.”
And with major economies like Japan gearing up for more monetary easing in the wake of Britain’s decision to leave the EU, experts say it’s unlikely that Korea will keep its own rate unchanged. “After the Brexit decision, countries worldwide are moving to implement monetary easing policies like quantitative easing and lowering their key rates. And that means the BOK has room to also jump into that race.”
Experts add the governor’s separate session on the country’s low inflation rate could also signal there’s more room for more rate cuts down the road. As for the new growth outlook for Korea for this year, a majority of economists is expecting the BOK to revise the figure down to 2.6 percent.
