Foreign investment banks predict South Korea’s central bank will slash its key rate this year as exports and domestic demand are likely to cool on the persistent eurozone jitters, data showed Tuesday.
Deutsche Bank and other major IBs have projected that the Bank of Korea will likely lower the benchmark 7-day repo rate to 3.15 percent by the third quarter of 2012, or 0.1 percentage point lower than the current figure, according to the data by the Korea Center for International Finance.
The BOK froze the key rate for the six straight months in December in a bid to shield the economy from the impact of growing downside risks from the debt-mired eurozone.
HSBC predicted the BOK to cut the key rate to 3 percent in the first quarter and hold it steady till the third quarter.
Barclays Capital and Citigroup projected the benchmark rate to stay at 3.25 percent till the July-September period, while Morgan Stanley expected a quarter-point cut during the third quarter.
Deutsche Bank forecast the benchmark interest rate to remain unchanged till the second quarter, but didn’t offer an outlook for the third quarter or thereafter.
Their projection draws a contrast to President Lee Myung-bak’s pledge made in his New Year’s address on Monday, in which he vowed to contain inflation in the low 3-percent range.
South Korea’s consumer prices rose 4.2 percent last month. For the whole 2011, the nation’s consumer prices grew 4 percent, raising worries over soaring inflation.
The foreign IBs cited strong downside risks from a slowdown in exports and the domestic economy as reasons for a rate cut outlook.
HSBC said in a report that the government will likely take preemptive measures to boost the economy, given the country’s rising household debt, stagnant growth in real income and a persistent property market slump.
South Korea’s household credit, which includes loans and credit purchases, has been on the rise, standing at 892.5 trillion won ($773.7 billion) as of end-September last year. (Yonhap News)
