Korea’s central bank is expected to keep its key interest rate steady for the eighth straight month in February due to persistent inflation concerns and downside risks to the domestic economy, a poll showed Tuesday.
All 14 analysts forecast that the Bank of Korea will freeze the benchmark 7-day repo rate at 3.25 percent on Thursday, according to the survey by Yonhap Infomax, the financial news arm of Yonhap News Agency.
Still-elevated inflationary pressure and looming external uncertainties will cause the BOK’s six policymakers to hold back at this month’s rate-setting meeting, analysts said.
“While downside risks to the economy are increasing with a decline in domestic growth and slowing exports, inflationary pressure co-exists, so the central bank is expected to maintain its current monetary policy,” said Kim Yoon-gee, a senior economist at the Daishin Economic Research Institute.
Even though the growth rate in South Korea’s consumer prices fell below the 4 percent ceiling of the central bank’s target range for the first time in three months in January, the government and the central bank are still wary of high inflationary pressure.
The consumer price index continued to rise from the previous month in January. A central bank’s survey of consumers showed that their median expectation of the inflation rate for the next 12 months ticked up to 4.1 percent last month, up 0.1 percentage points from December.
The on-going tension between Iran and the United States and anticipated hikes in public service charges are also expected to be the key source of concern for monetary policymakers, undermining the case for a rate cut to boost the economy.
Analysts said the BOK is unlikely to resume monetary tightening to tackle nagging inflationary concerns, as the latest data showed that the sovereign debt crisis in Europe is taking its toll on the South Korean economy and its key export partners.
South Korea’s growth domestic product expanded 0.4 percent on-quarter in the final quarter of 2011, with the growth rate slowing to a two-year low as Europe’s crisis dented exports and private consumptions.
The country also posted its first trade deficit in January as exports, its major growth engine, slipped 6.6 percent from the previous year.
(Yonhap News)
