South Korea's central bank is almost certain to freeze the key interest rate for the third month in a row for August amid improving signs of the local economy and concerns about China's slowdown, a poll showed Tuesday.
All 20 analysts predicted that the Bank of Korea (BOK) is expected to leave the benchmark seven-day repo rate unchanged at 2.5 percent on Thursday, according to the survey by Yonhap Infomax, the financial news arm of Yonhap News Agency.
In May, the BOK made its first rate cut in seven months in a bid to support the government's drive for the stimulus. The bank lowered the borrowing costs in July and October last year.
"The local economy is improving according to data on the better-than-expected growth and factory output," said Hong Jung-hye, a fixed-income analyst at Shinyoung Securities Co. "In the second half, the growth momentum is likely to be maintained, raising chances that the key rate will be frozen for the remainder of this year."
Korea's economic growth quickened to 1.1 percent in the second quarter from three months earlier, and its consumer inflation remained benign. The BOK last month revised up its 2013 growth forecast to 2.8 percent, and the government now expects the local economy to grow 2.7 percent this year.
The on-year growth of Korea's consumer prices picked up to 1.4 percent, a five-month high, in July, but they ran below the BOK's inflation target band of 2.5-3.5 percent for the ninth straight month.
But the Korean economy still faces downside risks such as China's economic slowdown and uncertainty over U.S. monetary stimulus tapering.
Growing concerns about China's slowdown are all the more unnerving to Korean policymakers as the world's second-largest economy is Korea's top trading partner, analysts say.
In what may be a worrying sign, Seoul's exports to China grew 5.3 percent on-year in June, slowing from 16.5 percent in May, according to data by the central bank.
Global central banks are on the divergent path in managing their monetary policy in accordance with the strength of each country's economic recovery in the face of the global economic slowdown.
Emerging countries like India are tightening their monetary policies in a bid to curb cross-border capital outflows while the Federal Reserve is mulling the timing of dialing back its bond-buying stimulus program. But central banks in the eurozone and Japan vowed to keep their accommodative policy stance.
Analysts said that the BOK is likely to stand pat on the key rate this year as the economic recovery is reducing the need to cut the benchmark rate while subdued inflation does not warrant an imminent rate hike.
But more experts are forecasting that the BOK's next move may be a rate hike, saying that the move may come late next year. The BOK forecast Asia's fourth-largest economy will grow 4 percent in 2014. (Yonhap News)
