BOK expected to freeze key rate at 1.5% for July: Moody's

Published : Jul 7, 2018 - 10:50 Updated : Jul 7, 2018 - 10:50

South Korea's central bank will likely hold its policy rate unchanged at the current 1.5 percent at its upcoming monetary meeting next week due to still low inflation pressure and rising uncertainties over trade disputes, a market watcher said Saturday.

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

The BOK has maintained the present level in the previous four sessions since it raised the rate by a quarter percentage point from an all-time low of 1.25 percent in its monetary meeting in November last year.

Lee Ju-yeol (Yonhap)

"The Bank of Korea will likely keep the policy rate at 1.5 percent in July," Moody's Analytics said in its weekly report.

"Although inflation climbed to a six-month high in April, price pressures remain relatively mild, as a strong won and a softening labor market are keeping a lid on price pressures."

South Korea's consumer price index rose 1.6 percent in April, accelerating from a 1.3 percent gain in March and marking the sharpest rise in six months. Inflation slid to 1.5 percent for May and June, lagging far below the 2 percent-target level for nine months in a row.

The Moody's said rising unemployment and simmering trade frictions in the world will weigh heavily on the BOK's rate decision the next few months.

But it noted that the central bank is likely seeking the best timing to raise the rate in a way that deals with economic cycles.

"That being said, the BOK is wary of leaving rates too low for too long and eager to create policy space for any future economic downturns," the report said.

Gov. Lee recently made some hawkish comments on rate hike issues, saying, "If the economy expands in line with its growth potential and consumer prices reach the target inflation, the central bank can adjust its level of monetary easing."

Many market watchers, meanwhile, have anticipated that the BOK increase the key rate sometime in the second half of the year in a bid 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, widening the rate spread between the two countries. (Yonhap)