Brokerages split over BOK's rate policy

Analysts from South Korean securities firms cast mixed forecasts for the central bank's interest rate policy this year as they are divided over the overall strength of the economic recovery, a survey showed Thursday.

In a split decision, the Bank of Korea (BOK) froze the key rate at 2.75 percent for the third straight month on Friday as some economic indicators show signs of improvement despite the protracted economic slowdown. The BOK also cut its 2013 growth outlook to 2.8 percent from 3.2 percent.

A total of eight out of 14 analysts predicted that the BOK may cut the key interest rate at least once this year while the remainder said that the central bank will likely stand pat on the rate throughout the year, according to the survey by Yonhap News Agency.

Samsung Securities Co. is the most dovish by forecasting that the BOK may slash the key rate three times to 2 percent, and SK Securities Co. and Korea Investment & Securities predicted that the key rate would be lowered to 2.25 percent this year.

Experts betting on a rate cut said that the BOK is likely to coordinate with the incoming government of President-elect Park Geun-hye, which will likely take an expansionary fiscal policy.

BOK Gov. Kim Choong-soo said Monday that policy effects are usually maximized when monetary policy and fiscal policy go together, spawning speculation that the central bank will cut the key rate after gauging the timing of the government's fiscal policy.

"The BOK's downgrade of its 2013 growth outlook indicates that the pace of economic activities is slow," said Park Hyung-min, an analyst at Shinhan Investment Corp. "A rate cut is highly likely to come this year."

Analysts who forecast the rate freeze said that the global economy shows signs of stabilizing and the government's frontloading of fiscal spending will help prop up the economy, reducing the necessity for a rate cut. (Yonhap)