Bank of Korea signals accommodative stance

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Bank of Korea signals accommodative stance

Monetary policy will remain accommodative in 2020 in an effort to stimulate the economy and ensure economic growth, the Bank of Korea said Friday in a statement detailing its stance for next year.

The benchmark interest rate stands at a record low of 1.25 percent, following two cuts this year.

“The bank will guide the base rate in an accommodative manner so as to ensure that the economic recovery continues and consumer price inflation can be stabilized at the inflation target [2.0 percent] over a medium-term horizon,” the central bank said in the statement.

Market analysts interpret the comments as suggesting that the authorities will cut rates again in 2020 to support the economy as Korea faces a wide range of challenges, including the U.S.-China trade war, sluggish exports and weak investment.

Most of major local brokerages - including Samsung Securities, NH Investment & Securities and Meritz Securities - agree that rates will be cut, though they differ in their view on the exact timing.

The Bank of Korea said that it would be challenging for the country to achieve its potential growth rate, the maximum possible rate an economy can grow without triggering inflation.

“The bank is taking into account that domestic economic growth is expected to remain below the potential growth rate and that demand-side inflationary pressures will be weak,” it said.

The central bank lowered the potential growth rate this year to a range of 2.5 to 2.6 percent through 2020 from the previous 2.8 to 2.9 percent.

As for this year’s economic growth, the figure, expected to be announced in the beginning of next year, will be “in the lower 2 percent range.” The estimate is in line with the bank’s latest prediction for this year’s GDP growth at 2 percent.

Major international investment banks - Morgan Stanley, Citigroup and Bank of America Merrill Lynch - are predicting less than 2 percent growth, noting uncertainties related to the protracted U.S.-China trade war and weak domestic economic indicators.

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