The market is eyeing whether the Bank of Korea will cut its key interest rate when it holds its monetary policy committee meeting Thursday, following Europe’s widely expected rate slash from 0.75 percent to a record low of 0.5 percent last week as the eurozone seeks to revive its economy through monetary easing.
Despite the government’s growing calls for a lower rate to further spur the economy, Korea’s central bank has kept its key base rate unchanged over the last six months, citing recovery toward the latter half of this year.
It seems BOK Gov. Kim Choong-soo will reach the same decision as before since he has reiterated that the central bank has already done its part in easing its monetary policy.
It is “now (the new government’s) turn” to play its role and generate the effect from its fiscal stimulus to spur the economy, Kim told reporters at the Asian Development Bank summit in India last week.
He added that the government had to fulfill its part in implementing a “policy mix” with the central bank, which already lowered its rate by 0.25 percentage points twice last year.
Those two rate cuts had been “significant,” he said, asking, “How far does it (the government) want the rate to go down further” in the country whose currency, the won, is not a key international currency such as the U.S. dollar and the Japanese yen?
Kim had previously mentioned that the risk of increasing capital-flow volatility would rise, should the bank ease its monetary policy like Japan, which has the capability to implement an aggressive monetary easing as the yen is a widely traded global currency.
Thus, the governor stressed the importance of a sound credit policy by increasingly facilitating loans to small and medium enterprises.
With the global economy, including Korea’s economic forecast, looking moderately bright toward the latter half of this year, analysts also seem to accept the fact that the BOK may remain prudent and decline to cut its key interest rate this year.
“We expect the central bank to keep its rate frozen and face limits in cutting it this year as the economy will moderately recover in the second half of this year, despite a slight transitory slowdown in the second quarter,” said June Park, an analyst at Meritz Securities.
The first quarter’s better-than-expected gross domestic product growth of 0.9 percent was another reason the BOK may stick to the same rate, analysts said.
By Park Hyong-ki (
hkp@heraldcorp.com)
