BOK forecast to hold key rate steady for Feb: pollMadeinkoreablog
The Korean central bank is widely expected to stand pat on its key rate for another month in February despite weak signs of a recovery in the economy and exports that might require a rate hike down the road, a poll showed Thursday.
In a monthly poll conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, all 10 economists surveyed projected the Bank of Korea (BOK) to hold its policy rate frozen at 1.5 percent for February.
The central bank has kept the key rate steady for seven consecutive months after sending the policy rate to a record low level through its latest rate cut in June 2015. The BOK’s monetary policy board will hold its monthly rate-setting meeting Tuesday.
The economists cited lingering uncertainties in the global financial market as one of the factors that may prevent a rate cut.
“The recent introduction of a negative interest rate by the Bank of Japan has reignited a global currency war, but the BOK will likely maintain a negative view on a rate cut as the value of the Korean won continues to show fluctuations,” said Park Jong-yeon, a senior researcher at NH Investment & Securities.
Many have noted a need for another rate cut to bolster growth in Asia’s fourth-largest economy.
Korea’s exports, a main driving engine for growth here, again plunged 18.5 percent on-year in January after dropping every single month last year.
The economists surveyed insisted the BOK will likely focus on stability for now.
“A need to boost the economy is growing amid slowing exports and low oil prices, but a rate cut may be another catalyst to a mass outflow of foreign capital, especially when the foreign exchange market remains in the doldrums at present,” Kookmin Bank economist Kim Seon-tae said.
“And therefore the BOK may begin to consider a rate cut only after focusing on stabilizing the foreign exchange market first,” he added.
Korea recently witnessed a record long streak of a selloff by foreign investors following the first U.S. rate hike in nearly a decade late last year.
“The BOK cannot but be reluctant to further reduce its key rate amid continued instability in the financial market and a fall in the value of the local currency. However, there remain many other factors that may prompt a rate cut in the future, such as Japan’s introduction of a negative interest rate and a slowdown in the global economy,” Dongbu Securities analyst Moon Hong-cheol said.
Five of the 10 economists surveyed forecast the BOK to slash its key rate to 1.25 percent in March, while eight of them expected the central bank to lower its key rate from the current level at least by June.