Global Banks Anticipate Further Korean Rate Cut

International financial institutions expect that Korea's central bank will further cut the interbank borrowing rate during the first half of this year.

Quoting foreign banks' expectations about Korean monetary policy, the Bank of Korea said Monday that Deutsche Bank forecasts that the central bank will lower the call rate by 25 basis points three times before July because the U.S. Federal Reserve is expected to slash its rate by 1 percentage point in that period.

Salomon Smith Barney forecast that the call rate will be cut by an additional quarter-point in April in a bid to boost the slowing economy. It expects no further cut this year due to concern over rising prices.

Merrill Lynch also predicted additional rate cuts totalling 0.5 to 0.75 percentage point during the first half, depending on how much prices rise.

Although generally welcoming the recent cut in the call rate by a quarter point, some overseas banks wondered if it was sufficient.

ABN AMRO said that given the economic slowdown, a half-point cut might have been more appropriate. The Bank of Korea said ABN AMRO stressed the need for a preemptive rate cut as the United States did.

by Kim Hyun-chul