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BOK forecast to hold key rate steady for June: poll

All News 08:00 June 07, 2016

SEOUL, June 7 (Yonhap) -- South Korea's central bank is widely expected to hold its key rate steady in June, a poll showed Tuesday, amid what economists called mild signs of recovery and a looming U.S. rate hike.

In a survey conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, 11 out of 13 economists polled forecast the Bank of Korea (BOK) to stand pat on its key rate this month.

The BOK has kept its policy rate frozen for 11 consecutive months since June 2015 after sending it to a record low of 1.5 percent through four rate cuts in less than a year.

Ma Tieying, an economist at DBS in Singapore, insisted recent improvements in local conditions will prompt the South Korean central bank to hold the rate steady at least for now.

"The continued improvement in domestic demand, as evidenced by the data release this week, should encourage the BOK to maintain the status quo on monetary policy at the June meeting," he said.

South Korea's exports continued to dwindle for the 17th consecutive month in May, but the rate of drop also slowed to the lowest level of 6 percent on-year in May, the trade ministry said earlier.

Also in April, output by the service industry gained 2.1 percent on-year, while domestic consumption climbed 4.2 percent from a year earlier.

Kookmin Bank economist Kim Seon-tae also noted signs of recovery, but forecast the BOK to extend its wait-and-see mode for another month to see the outcome of the U.S. Federal Reserve's June meeting.

"The local economy is showing mild signs of recovery centered around exports, but we believe the downward pressure on the key rate is growing, as the resilience of recovery remains weak while consumer price inflation also remains lower than anticipated," he said.

"However, the BOK is expected to make a rate cut after monitoring the direction of various factors as the U.S. is expected to again raise its key rate at the upcoming Federal Open Market Committee (FOMC) meeting in June while the foreign exchange market is also showing signs of instability," Kim added.

The BOK's rate-setting meeting is scheduled for Friday. The U.S. Fed's FOMC meeting is slated for June 14-15.

Many economists expected the BOK to further slash its key rate as soon as the U.S. Fed decides the direction of its monetary policy.

A whopping 10 out of the 13 economists surveyed expect the BOK to cut its policy rate to 1.25 percent in July, with another economist forecasting a rate cut of 0.5 percentage point. Only two anticipated another rate freeze next month.

"I expect (the BOK) to reduce its key rate to 1.25 percent in July, along with a downward revision of its growth outlook, as economic indicators and sentiments may worsen due to the effect of ongoing corporate restructuring," said Shin Dong-soo, an analyst at Eugene Investment & Securities.


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