BOK expected to hold key rate unchanged for August: Moody's

The Bank of Korea will likely maintain its policy rate at the current 1.5 percent next week as Asia's fourth-largest economy is struggling with sluggish employment and global trade disputes, a market watcher said Saturday.

Chaired by Gov. Lee Ju-yeol, the seven-member panel of the BOK will hold its sixth monetary policy meeting Friday and decide whether to keep or adjust the key rate.

The key rate has remained unchanged since the central bank raised it by a quarter percentage point from an all-time low of 1.25 percent in November last year.

The panel has said it is necessary to keep the interest rate accommodative to support the recovery pace of the economy.

In the previous meeting in July, the situation changed slightly as one member called for a rate hike, citing a financial imbalance caused by a yearslong low rate trend.

But Moody's said the BOK is unlikely to budge in August in the face of a sluggish job market and simmering trade frictions.

"Against the background of a weak labour market and escalating trade frictions, the Bank of Korea has refrained from raising its key policy rate further so far this year," Moody's Analytics said in its weekly report. "Amid still-mild price pressures and rising trade tensions, we expect the Bank of Korea to keep its key policy rate unchanged at 1.5 percent at its August meeting."

The number of jobs newly created in July came to 5,000, the smallest on-year gain since January 2010, dealing a hard blow to the incumbent Moon Jae-in government, which has staked its reputation on creating employment opportunities that can generate balanced and sustainable growth under the motto of income and consumption-driven growth.

At the same time, a possible trade war between the United States and China poses further headwind for South Korea, which relies heavily on exports to generate growth. The two countries exchanging blows are South Korea's No. 1 and No. 2 trade partners.

Meanwhile, many market watchers here expect the central bank to mark up the key rate at one of its three remaining rate-deciding meetings in 2018. Such a move would allow Seoul to keep up with the US Fed's rate hike schedule for 2018.

The Fed increased its fund rate to the 1.75-2.0 percent range in June, higher than that of South Korea. Recently, the US

central bank said it will keep its rate-hike schedule for this year.

Also, in its earlier reports, Moody's anticipated that the BOK would move to raise the base rate in order to "create policy space for any future economic downturns." (Yonhap)