Central bank may make cut to buoy economy

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Central bank may make cut to buoy economy

Korea’s central bank will likely cut the key rate to a record low of 0.5 percent this year as a way to boost the economy amid the U.S. Federal Reserve’s tightening stance, global financial service firm Morgan Stanley said Monday.

It expected that the Bank of Korea (BOK) will slash the rate three times throughout 2017 from the current 1.25 percent to 0.5 percent by the end of the third quarter.

Other investment banks, including Goldman Sachs and JP Morgan, also anticipate that the BOK will lower the rate to 1 percent this year.

The Korean central bank has frozen the key rate at 1.25 percent since June last year.

Experts noted that such companies are calling for more aggressive monetary intervention by the central bank, as Asia’s fourth-largest economy is facing intensified uncertainties at home and abroad.

Rising trade protectionism and tensions between the world’s two heavyweights of the United States and China over foreign exchange will weigh heavily on global trade and the Korean economy, which depends highly on exports.

Moreover, the country is deeply embroiled with the political issues surrounding the impeachment of President Park Geun-hye and the possibility of early presidential elections.

Also, massive household debt worth 1.3 quadrillion won ($1.1 trillion) has made the BOK reluctant to raise the key rate.

But some economists said that it is not simple for the BOK to take action in the near future, as the U.S. Federal Reserve will raise its key rate several times in 2017 on the back of the recovering pace of the world’s biggest economy.

A further rate cut may lead the Korean rate to go below the U.S. interest rate range of 0.50-0.75 percent and consequently spark a sudden outflow of foreign capital from the local equity market.’ YONHAP
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