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BOK likely to freeze key rate for 6th month in Nov.

All Headlines 10:29 November 11, 2013

SEOUL, Nov. 11 (Yonhap) -- South Korea's central bank is likely to freeze the key interest rate for the sixth straight month in November amid signs of economic recovery and tame inflation, a poll showed Monday.

All 20 analysts forecast that the Bank of Korea (BOK) will leave the benchmark seven-day repo rate unchanged at 2.5 percent on Thursday, according to the survey by Yonhap Infomax, the financial news arm of Yonhap News Agency.

Experts said that the BOK is likely to take a wait-and-see stance as the local economy is showing signs of further improvement while inflationary pressure remains benign.

"The BOK is likely to freeze the policy rate for a considerable period of time," said Ma Ju-ok, an economist at Kiwoom Securities Co. "The local economy is showing signs of recovery, but external economic uncertainty persists."

The Korean economy grew 1.1 percent on-quarter in the third quarter on improving domestic demand and a pickup in facility investment. The third-quarter growth topped market expectations.

But a set of economic data indicates that the economic growth momentum is still not strong. Korea's industrial output shrank 2.1 percent on-month in September, while exports surged to a new monthly high of $50.5 billion in October.

Overseas shipment remained solid even as the Korean currency has been put on upward pressure against the U.S. dollar amid influx of foreign capital. The won has risen more than 3.34 percent to the greenback.

External economic uncertainty still persists as well. The European Central Bank made a surprise rate cut last week to support the growth while uncertainty over the timing of the Federal Reserve's monetary stimulus tapering is growing.

Korea's inflationary pressure remains subdued as the consumer prices are running below the BOK's 2.5-3.5 percent inflation target band. The country's consumer prices grew at the slowest pace in 14 years in October on falls in prices of farm products.

Experts said that the BOK may stand pat on the benchmark rate until the first half of next year and that its next move is likely to be a rate hike.

"Talks over a rate increase may flare up in the second half of next year. It would be possible for the BOK to shift into a tight bias after the Fed ends its quantitative easing," said Kim Jong-su, an analyst at Taurus Investment & Securities Co.

The Fed surprised the market in September by delaying tapering its US$85 billion monthly bond purchases. Fed Chairman Ben Bernanke said in June that the U.S. central bank could start dialing back its bond purchases later this year and possibly end them by mid-2014.


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