No rate change likely until late 2013

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No rate change likely until late 2013

Global investment banks are forecasting Korea’s central bank will likely keep interest rates steady through the first six months of next year, as the economy regains steam at a gradual pace, a report showed yesterday.

Major banks, including Goldman Sachs, expect the Bank of Korea to freeze its key interest rate at 2.75 percent through the first half of 2013, citing their overall outlook that protracted global jitters are less likely to further aggravate the situation, according to a report by the Korea Center for International Finance.

HSBC predicted the BOK could keep the rate unchanged until the third quarter of next year, when the economy may show signs of moderate growth under a new government. The bank added that China will likely help fuel brisk corporate investment in Korea next year.

Goldman Sachs and JP Morgan gave more weight to a rate freeze through the first half, noting that the BOK’s first monetary policy meeting after the leadership transition would be crucial. Koreans will elect a new president on Dec. 19.

According to the report, Nomura and Morgan Stanley lent support to the consensus, saying that the U.S. “fiscal cliff,” the euro zone debt crisis and a hard-landing for China will not worsen and weigh down smaller economies like Korea.

In contrast, Citigroup and BNP Paribas projected a rate cut for the BOK early next year, saying the pace of global recovery is too slow.

Citigroup gave a dimmer outlook for Korea, saying it will grow only 2 percent on-year through the first half of next year regardless of its election result due to faltering private consumption and weakening exports before getting back on track for growth in the 4 percent range in the second half, according to the report.

The local economy grew 0.2 percent on-quarter in the third quarter of this year, its slowest pace in three years. The BOK cut the 2012 and 2013 growth outlooks to 2.4 percent and 3.2 percent, respectively.


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