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BOK likely to hold key rate steady in March: poll

All Headlines 09:16 March 07, 2016

SEOUL, March 7 (Yonhap) -- South Korea's central bank will likely hold its policy rate steady for another month in March amid growing concerns over mounting household debts, a poll showed Monday.

In a poll conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, 11 out of 19 economists surveyed projected the Bank of Korea (BOK) to keep its key rate frozen at 1.5 percent at its monthly rate-setting meeting scheduled for Thursday.

The BOK has stood pat on its key rate since June after slashing it to the record low level through four rate cuts in an attempt to bolster growth in Asia's fourth-largest economy.

Signs of an economic recovery continue to remain weak, while exports have kept going south for the past 14 months.

"The financial market has nearly become stabilized, but there still remain enough uncertainties that a rate cut in March may spark fresh concerns," NH Investment & Securities researcher Park Jong-yeon said.

The country witnessed a near exodus of foreign capital late last year when the U.S. Federal Reserve raised its own key rate in its first rate hike in nearly a decade.

Foreign investors were net sellers of South Korean shares for 37 consecutive sessions, the longest streak, between Dec. 2 and Jan. 26, dumping over 6 trillion won (US$4.97 billion).

"Considering the heightened volatility in the Korean won and increase in capital outflows, the BOK would like to adopt a prudent approach and avoid early rate cuts at the current point," said Ma Tieying, an economist at DBS in Singapore.

Eight of the 19 economists surveyed expected the central bank to further slash its policy rate to boost exports and domestic spending, two major pillars of growth here.

"We expect the Bank of Korea to cut rates at its March meeting to 1.25 percent, as weak external conditions start to drag on the domestic economy, said Emily Dabbs of Moody's Analytics.

South Korea's household spending dipped to an all-time low in 2015, while the growth in consumer prices is expected to remain in the low 1 percent range in the first half of this year, falling far short of the BOK's 2 percent inflation target for the 2016-2018 period.

"While the key rate has been frozen for more than eight months, we continue to see slumps in both exports and domestic consumption that indicate a further weakening of consumer sentiment, and this highlights a need for an additional rate cut to counter future risks," Kyobo Securities economist Lee Seul-bi said.

In the Infomax poll, a whopping 15 out of 17 economists forecast the BOK to lower its key rate to at least 1.25 percent by June.

bdk@yna.co.kr
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