Nomura Holdings still sees interest rate risingNomura Holdings, the most accurate forecaster of Bank of Korea action in the past six months, is sticking with its outlook for interest-rate increases after Goldman Sachs predicted a cut.
Kwon Young-sun, a Hong Kong-based economist at Nomura, has a 4 percent prediction for 2014 economic expansion, faster than the central bank’s 3.8 percent, as a rebounding U.S. economy and a stronger dollar ease pressure on exports.
The gap between three- and 10-year sovereign yields widened to a three-year high of 79 basis points on Jan. 8 on growth optimism. The won slid 1.1 percent against the greenback this year.
Bank of Korea Governor Kim Choong-soo, set to retire March 31, will hand off a two-speed economy as exports boom and household debt dampens domestic demand. While political pressure for rate cuts may intensify on President Park Geun-hye with municipal elections June 4, Nomura sees few economic reasons for its prediction.
“A solid job market, bottomed-out inflation and improved GDP growth suggest no need to cut rates,” said Kwon, who was the only analyst among 16 to predict the BOK would be on hold rather than cut in September 2012. “However, if the new BOK governor turns out to be very dovish, there is a political risk of a rate cut even though macro situations improve,” he said in a Friday email interview.
Board members kept the benchmark rate unchanged at 2.5 percent on Jan. 9, citing strength in Asia’s fourth-biggest economy. That day the central bank projected growth will accelerate from 2.8 percent in 2013.
Earlier this month, ruling party lawmaker Chung Woo-taik reportedly urged the BOK to cut its interest rate significantly to help the economy. Easing the pace of won gains would be an efficient policy to protect exporters, Chung said, according to media reports.
The political pressure may intensify as the municipal races are the biggest elections since Park took office in February 2013, according to a Jan. 13 report by Woori Investment and Securities fixed-income strategist Peter Park.
Goldman Sachs expects a 25 basis point rate cut “in the near term” on concern about tightening domestic financial conditions, Seoul-based economist Kwon Goo-hoon wrote in a Jan. 9 report. It sees a 3.7 percent expansion in the Korean economy this year, a report showed Thursday. Bloomberg
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