BOK forecast to cut key rate for December

SEOUL, Dec. 8 (Yonhap) -- South Korea's central bank is widely expected to further slash its key interest rate for December to bolster the cooling economy, but experts were divided over how much the bank will cut the rate, a poll showed Monday.

A total of nine economists at 17 financial institutions predicted that the Bank
of Korea (BOK) will lower the benchmark seven-day repo rate by 0.5 percentage
point to 3.5 percent on Thursday, according to the poll by Yonhap Infomax, the
financial news arm of Yonhap News Agency. The remainder said that the BOK is
expected to cut the rate by a quarter percentage point to 3.75 percent.
"The BOK is expected to trim the rate by 50 basis points on sluggish domestic
demand and faltering exports," said Chun Chong-woo, a senior economist at SC
First Bank. "To prevent a sharp slowdown of the economy, it is also hard to
exclude the possibility that the bank may lower the rate by more than a half
percentage point."
Since early October, the BOK has slashed the key rate by a combined 1.25
percentage point to 4 percent in a bid to keep global financial turmoil from
sharply slowing the real economy.
The South Korean economy grew 0.5 percent in the third quarter from three months
earlier, the weakest growth in four years.
Asia's fourth-largest economy is expected to lose steam further next year as
exports, which account for about 50 percent of the economy, have already shown
signs of slowing down.
South Korean overseas shipments declined 18.3 percent on-year in November, the
biggest drop in seven years, as the global economic slump has begun to spill over
into emerging markets like China.
Global investment banks and international bodies laid out a gloomy outlook for
the Korean economy for next year. Seven major global investment banks, including
JP Morgan, forecast the Korean economy will grow an average of 1.2 percent in
2009, citing a faster-than-expected worldwide recession and its impact on the
export-driven economy. UBS AG even forecast that Korea's economy will contract 3
percent next year.
Meanwhile, the country's consumer prices grew 4.5 percent on-year in November,
slowing from a 4.8 percent advance the previous month as oil and raw material
prices declined.
Experts said the BOK is expected to continue its monetary easing next year to
cushion any impact of the global recession and financial turbulence on the Korean
economy.
"Downside risk to economic growth is increasing, which calls for the government's
aggressive economic stimulus packages. Given the local economy will likely slow
until the first half of next year, the BOK's rate cuts are likely to go on," said
Im No-jung, an economist at Solomon Investment & Securities Co.