SEOUL: South Korea’s central bank is forecast to keep its benchmark interest rate unchanged at its meeting on Friday as board members would prefer to wait for the Federal Reserve’s next policy decision in two weeks, a Reuters poll found. Twenty-five of 26 economists surveyed by Reuters expect Bank of Korea Governor Lee Ju-yeol and his board to hold the rate at a record low of 1.25 percent. The bank last cut, unexpectedly, in June.
Korea Investment & Securities was the only respondent to forecast a cut in September. “There is a growing need to check how financial markets act especially as expectations of a U.S. rate hike within this year have been bolstered since the Jackson Hole meeting,” said Kong Dong-rak, a fixed-income analyst at Korea Asset Investment Securities. The Federal Open Markets Committee is scheduled to meet September 20-21.
While the BOK is forecast to stand pat this Friday, a majority of survey respondents saw an interest rate cut in the near term to combat the effects of sluggish exports and fallout from the collapse of Hanjin Shipping Co. Ltd, which is disrupting the supply chain for key export items including televisions and cars.
The disruptions stemming from Hanjin’s filing for court receivership is a fresh blow to Asia’s fourth largest economy where growth is already constrained by record household debt and sluggish exports. An 11 trillion won ($10.06 billion) supplementary budget that the government sees as important to contain the fallout from the ongoing corporate restructuring was passed by parliament last week.
South Korea’s exports rebounded from 19 straight months of falls but rose just 2.6 percent in August on-year, largely due to the two extra working days compared to a year ago. Inflation remains tepid. While growth rebounded in the second quarter to 0.8 percent from three months earlier, a finance ministry official last week said it is likely to be slower in the third quarter than the second.
Even if the BOK doesn’t act at this meeting, there could be dissenters calling for a cut, which would raise the likelihood of policy easing in coming months. The board unexpectedly cut rates in June this year after minutes of the May meeting showed that one board member favoured a near-term cut. Lee Sur-bee, an analyst at Samsung Securities, recently withdrew her call for a cut as “the BOK seems to be perceiving the household debt issue more seriously,” she said. She now sees the base rate staying on hold through the end of the year.
