Korea forecast to freeze interest rate in Sept.: survey

South Korea's central bank is expected to freeze the key interest rate in September as it monitors the impact of last month's rate cut and the government's stimulus measures, a survey showed Tuesday.

The Bank of Korea lowered the base interest rate by a quarter percentage point to 2.25 percent last month in a widely-expected move to join the government's efforts to spur the economy, but a clear majority of market watchers didn't expect a rate cut for a second month in a row.

According to the survey conducted by the Korea Financial Investment Association, 96.5 percent of 113 bond experts forecast the BOK will maintain the interest rate at the current level in the upcoming meeting slated for Friday.

Market watchers said the central bank may take a wait-and-see approach before making the next monetary decision, assessing the effects of the expansionary economic policy and its impact on domestic demand.

"There are several factors because the government's stimulus measures can be implemented only after the parliament passes related bills," Goldman Sachs economist Kwon Ku-hoon said. "The BOK will leave the interest rate at the current level and monitor the development."

BOK Gov. Lee Ju-yeol has remained cautious over the possibility of a further cut within this year, saying any monetary decision will take into consideration the latest rate cut and the government's efforts to boost consumer sentiment.

If the stimulus package remains stuck in the parliament and economic data points to a weaker-than-expected recovery, the central bank may face pressure from the government to take more easing measures, experts said. 

"There is the possibility of an additional rate cut if the government continues to pressure (the BOK) to put in concerted efforts (to boost the economy)," Park Hee-chan, a researcher at Mirae Asset Securities, said, forecasting another cut in October or November.

Others, however, questioned the impact of the central bank's monetary easing in a low growth, low rate environment.

"As the potential growth rate has slumped in the wake of the global financial crisis, slashing the key interest rate will have limited impact," said Im Jin, a researcher at the Korea Institute of Finance. "It is time for (the government) to focus on solving structural problems, such as rising household debt and the aging population, which have weighed on the economic growth rate." (Yonhap)