Bank of Korea to freeze key rate for August: poll

SEOUL, Aug. 7 (Yonhap) -- South Korea's central bank is widely expected to keep
its key interest rate unchanged for August for a sixth month amid signs of
economic improvement and eased inflation, a poll showed Friday.

All economists at 16 financial institutions predicted that the Bank of Korea
(BOK) will freeze the benchmark seven-day repo rate at a record low of 2 percent
on Tuesday, according to the poll by Yonhap Infomax, the financial news arm of
Yonhap News Agency.
"The BOK is forecast to freeze the rate in August as inflationary pressure is
stable while the private sector has yet to gain momentum for an economic revival
on its own," said Soh Jae-yong, an economist at Hana Daetoo Securities Co.
The BOK cut the rate by a total of 3.25 percentage points between October and
February in an effort to bolster a sharp economic slowdown. The bank left the
rate unchanged for five months in a row in July, saying that the local economy
has emerged from a downturn.
A batch of economic data are underpinning rising optimism that Asia's
fourth-largest economy is bottoming out, although the economic outlook is still
murky due to slumps in major advanced countries, leading policymakers to strike a
cautious note about the pace of economic recovery.
South Korea's industrial output rose 5.7 percent in June from a month earlier,
marking the sixth straight monthly expansion. The country logged a trade surplus
of US$5.14 billion in July, lending firm support to the Korean currency, which
has strengthened about 28 percent against the U.S. dollar since early March.
Despite rising prospects for an economic rebound, experts say that it is
premature for the central bank to end its softer monetary stance.
"In the second half, the growth of the Korean economy is likely to slow and
economic uncertainties at home and abroad persist," said Kim Yoon-ki, an
economist at the Daishin Economic Research Institute.
The Korean economy grew 2.3 percent in the second quarter from three months
earlier, the fastest pace in over five years, on the back of economic stimulus
packages. The BOK said the effects of strong fiscal spending would wane down the
road, which would lead the second-half growth to slow down.
Economists say the BOK may raise the rate as early as next year, but before the
rate hike, it is likely to gradually soak up ample liquidity by unwinding
unconventional measures that it adopted in the midst of the global financial
turmoil.
The government has reiterated that it will stick to its "expansionary" economic
policy, as it is premature to say that the economy is making a full recovery.
South Korea's consumer prices rose 1.6 percent in July from a year earlier, the
slowest pace in more than nine years, easing concerns that inflation may hamper
an economic recovery and spark asset bubbles.
sooyeon@yna.co.kr
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