Repo rate cut on the cards, IBs claim

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Repo rate cut on the cards, IBs claim

Foreign investment banks (IBs) predict Korea’s central bank will slash its key rate this year as exports and domestic demand are likely to cool due to persistent euro zone jitters, data showed yesterday.

Deutsche Bank and other major IBs have projected that the Bank of Korea (BOK) will likely lower the benchmark seven-day repo rate to 3.15 percent by the third quarter of 2012, or 0.1 percentage point lower than the current figure, according to the data by the Korea Center for International Finance.

The BOK froze the key rate for the sixth straight month in December in a bid to shield the economy from the impact of growing downside risks from the debt-mired euro zone.

HSBC predicted the BOK will cut the key rate to 3 percent in the first quarter and hold it steady until the third quarter.

Barclays Capital and Citigroup projected the benchmark rate will stay at 3.25 percent through the July-September period, while Morgan Stanley expected a quarter-point cut during the third quarter.

Deutsche Bank forecast the benchmark interest rate will remain unchanged until the second quarter, but did not offer an outlook for the third quarter or beyond.

Their projection comes in contrast to President Lee Myung-bak’s pledge made in his New Year’s address on Monday, in which he vowed to keep inflation within the low 3 percent range.

Consumer prices rose 4.2 percent in Korea last month, or 4 percent for the year, raising concern about soaring inflation. The foreign IBs cited strong downside risks from a slowdown in exports and the domestic economy in explaining the predicted rate cut.


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