With its rate-setting board meeting slated for this week, South Korea’s central bank is gearing up to lower its economic growth forecast and base interest rate, in step with the sluggish recovery pace of the global economy and the US Federal Reserves’ signal of a rate cut.
While most predicted a rate cut of 25 basis points from the current 1.75 percent by no later than August, views differed on the pace and frequency of further rate cuts this year.
The Bank of Korea is scheduled to hold its Monetary Policy Board meeting for July on Thursday, amid mounting speculations that it will lower its economic growth forecast for this year from the earlier 2.5 percent.
The meeting comes in the wake of the Fed’s latest hint that it will carry out a rate cut later this month, responding to the dwindling possibilities of a global economic recovery.
Also, weighed down by external factors -- the persisting US-China trade dispute and struggling chip market -- trade-dependent South Korea saw its exports decline for seven months straight in June.
Earlier this month, the Ministry of Economy and Finance lowered its growth forecast to 2.4-2.5 percent from the previous 2.6-2.7 percent, citing the growing downside risks of external factors.
“Uncertainties regarding (the Korean economy’s) growth path have grown visibly,” said BOK Gov. Lee Ju-yeol last month, alluding to a possible rate cut.
As the Fed’s rate decision is slated for late July, most experts here predicted that the BOK is likely to signal a rate change this month and carry it out in August.
“I expect that (the BOK board) will free the policy rate this month, with two (board members) upholding the minority opinion (approving of an immediate rate cut),” said Kim Sang-hoon, analyst at KB Securities.
In the previous board meeting in May, dovish member Cho Dong-chul had voted for a 0.25 percentage point cut, citing low inflation.
Park Sang-hyun, analyst at HI Investments & Securities, also claimed that the BOK board has already been inching closer toward expansionary monetary actions.
“Of course, we cannot totally exclude the possibility that (the BOK) may preemptively cut the rate in July, ahead of the US Fed,” he said, citing the pressing need to boost the nation’s employment and exports.
“But it is more likely that the BOK may maintain its rate-freezing stance for as long as possible before lowering it in August.”
When it came to the question of whether the central bank will cut the rate again later this year, opinions remained divided.
“Considering (Seoul’s) policy capacities, supplementary budget amount and impact from the US-China trade negotiations, (the BOK) is likely to remain prudent over its rate-changing pace,” said Shin Dong-soo, analyst at Eugene Investment Securities.
Other observers, however, suggested that Seoul may consider up to three rate cuts by next year, depending on the pace of the Fed’s expansionary actions.
By Bae Hyun-jung (email@example.com)