Bank of Korea to freeze key rate for Nov.: poll

SEOUL, Nov. 10 (Yonhap) -- South Korea's central bank is widely expected to
freeze its key interest rate for a ninth straight month in November as a nascent
economic recovery has yet to prove sustainable, a poll showed Tuesday.

A total of 16 economists at 17 financial institutions predicted that the Bank of
Korea (BOK) will keep the benchmark seven-day repo rate steady at a record low of
2 percent on Thursday, according to the poll by Yonhap Infomax, the financial
news arm of Yonhap News Agency. One analyst predicted a 0.25 percentage point
rate hike.
"Due to economic uncertainty at home and abroad, a possible rate hike may come in
the first quarter of next year after the central bank assess the pace of economic
recovery," said Oh Chang-sup, an economist at IBK Securities. "Tamed inflationary
pressure and stabilizing asset prices also put less of a burden on the monetary
policy authorities."
A set of economic data are underpinning optimism that the Korean economy is
recovering at a faster-than-expected pace compared with other major economies.
Asia's fourth-largest economy grew 2.9 percent in the third quarter from three
months earlier, the fastest quarterly expansion in more than seven years. But the
strong numbers came due mainly to a wrap-up in inventory adjustment, leading
policymakers to cast still-cautious outlooks for the economy.
In September, BOK Gov. Lee Seong-tae hinted that the bank could hike the rate if
housing prices continue to rise, but he softened his tone last month, saying that
his remarks in September did not mean an imminent rate increase -- a sign that
the BOK would not be in a hurry to tighten its monetary policy, given the
uncertain economic outlook.
More economists predicted that the central bank will leave the rate unchanged
throughout this year and that any potential rate hike would come in the first
quarter.
"Housing prices, one of the key concerns for the BOK, have maintained stable
movement, giving the central bank leeway to take time before a possible rate
hike," said Gong Dong-rak, a fixed-income analyst at Taurus Investment &
Securities Co. "The bank is expected to raise borrowing costs after reviewing the
fourth-quarter economic performance."
But some analysts are still betting on a rate increase this year, saying that
given the pace of the economic recovery, the key rate stands too low..
"Although the growth of asset prices eased and inflationary pressure is low,
housing prices are at a high level and commodity prices are on the upward trend,"
said Yang Jin-mo, an analyst at SK Securities Co. "There is sufficient ground for
a rate increase and if the BOK gives a signal that the pace of the tightening
cycle would be gradual, market uncertainty will be dispelled."
The BOK cut the key rate by a total of 3.25 percentage points between October
last year and February in an effort to put the brakes on a sharp economic
freefall.
sooyeon@yna.co.kr
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