BOK not expected to change key rate this month

Korea’s central bank is widely expected to freeze the key interest rate for November as it takes time to gauge the impact of the previous month’s rate cut on the slowing economy, analysts said yesterday.

The Bank of Korea’s seven-member monetary policy committee is forecast to leave the benchmark 7-day repo rate unchanged at 2.75 percent on Friday, following a quarter-percentage rate cut in October, according to experts.

Last month, the central bank cut the borrowing costs and its growth estimates for 2012 and 2013 as the protracted euro zone debt crisis and China’s slowing economy increase downside risks to Asia’s fourth-largest economy. In July, the bank also lowered the key rate.

“The BOK will need the time to assess the impact of its rate cut in October on the economy,” said Jeon Hyo-chan, an economist at the Samsung Economic Research Institute.

The domestic economy is losing steam due to weak exports and sluggish domestic demand. GDP grew a mere 0.2 percent on-quarter in the third quarter, slowing from a 0.3 percent gain in the second quarter.

Recent economic data showed factory output and exports posted slight improvements, but many analysts said it is too early to say the local economy is rebounding.

Industrial output posted an on-month gain in September to cap a run of losses. Exports, which account for about 50 percent of GDP, grew 1.2 percent on-year in October, the first gain in four months.

The BOK earlier said quarterly growth is unlikely to reach 1 percent until the first half of next year. It cut its 2012 and 2013 growth estimates to 2.4 percent and 3.2 percent, respectively.

Analysts said the key rate is likely to stay at the current level until the end of this year, given that political changes including the presidential election in December may make it difficult for board members to change the course of policy actions.

“The central bank will likely stand pat on the rate this year and may discuss whether to resume an easing cycle in the first half of next year,” said Kong Dong-rak, a fixed-income analyst at Taurus Investment & Securities.

The Korean economy is unlikely to make a fast recovery, analysts say.

Yonhap