BOK forecast to cut key rate for November

SEOUL, Nov. 4 (Yonhap) -- South Korea's central bank is widely expected to further slash its key interest rate for November following last week's emergency rate cut in a bid to prop up the cooling economy, a poll showed Tuesday.

A total of 17 economists at 21 financial institutions predicted that the Bank of
Korea (BOK) will lower the benchmark 7-day repo rate by a quarter percentage
point to 4 percent on Friday, according to the poll by Yonhap Infomax, the
financial news arm of Yonhap News Agency.
One economist predicted a cut of half a percentage point, while three others
forecast the BOK would freeze the rate.
Last week, the BOK cut the key rate by a record 0.75 percentage point to 4.25
percent during an unscheduled policy meeting in a move to keep global financial
turmoil from sharply slowing the real economy. The move was the second rate cut
in October.
Experts say the central bank is expected to reduce borrowing costs further this
week as the country's economic growth loses ground, led by sluggish domestic
demand, while the country's rising consumer inflation shows signs of easing.
"Downside risk to economic growth heightened more than ever amid a global credit
crunch. Given the government and the BOK's moves to stabilize markets, an
additional rate cut is widely expected," said Shin Dong-soo, an economist at NH
Investment & Securities Co.
The South Korean economy grew 0.6 percent on-quarter in the third quarter,
marking the slowest growth in four years, due to sluggish domestic demand and
lagging export growth.
South Korean households and smaller firms, whose debts are piling up, have been
increasingly cutting their spending amid a slowing economy and the global
financial meltdown.
Asia's fourth-largest economy is expected to lose steam further next year as
exports, which account for about 50 percent of the economy, are likely to slow.
Although the country posted its first trade surplus of US$1.22 billion in five
months in October, exports grew by only 10 percent from a year earlier, compared
with a 28.2 percent on-year gain in September.
Meanwhile, the country's consumer prices grew 4.8 percent in October from a year
earlier, slowing from a 5.1 percent on-year advance in the previous month as a
fall in oil and commodity prices reduced overall import bills.
Experts also say South Korea's recent swap deal with the United States will also
provide some leeway for the BOK to lower the key rate as the agreement eased
downward pressure on the local currency. The won has fallen almost 26 percent to
the greenback so far this year.
On Thursday, the BOK announced a $30 billion swap agreement with the U.S. Federal
Reserve, which helped the Korean currency post its largest daily gain against the
dollar in 11 years on the same day.
Some, however, forecast that the BOK will likely leave the key rate unchanged at
4.25 percent on Friday as it watches for the effects of its biggest rate cut
ever.
"There is probably scope for at least another 25 basis point cut this year, but
maybe not in November given last week's cut," said Joseph Lau, an economist at
Credit Suisse. "(If the BOK does not cut the rate in November), then December is
a strong likelihood."
sooyeon@yna.co.kr