BOK chief hints at no additional rate cut

South Korea’s central bank chief showed skepticism over the growing predictions in the market that the Bank of Korea would conduct a benchmark rate cut once more next month.

In a meeting with private economists Wednesday, BOK Gov. Lee Ju-yeol said his earlier remarks at the National Assembly did not hint that the bank was considering slashing the interest rate further from the current record low of 1.5 percent. 

Lee had told lawmakers during the parliamentary audit that “the base rate has yet to reach the lower limit of nominal interest rates.”

His remarks have led more market participants to predict a rate cut in the next meeting of the BOK’s monetary policy committee, slated for Oct. 15.

Lee clarified that his comments at the Assembly were not focused on the direction of the coming monetary policy.

Some lawmakers have criticized the BOK for fueling the mounting household debt by cutting the key rate four times -- 100 basis points collectively -- from the former 2.5 percent since Lee took office in April 2014. They also raised questions about efficacy in terms of vitalizing the economy.

Meanwhile, the governor confirmed that the nation’s growth would stay below the psychologically significant 3 percent mark this year.

While the BOK revised down its outlook on the 2015 GDP growth to 2.8 percent in July, Lee hinted at an additional revision of the estimate downward at the Oct. 15 rate-setting meeting.

“In reflection of the export slump in the second quarter, there may be a marginal revision of the July forecast,” he told the private economists. Lee, however, downplayed some global investment banks’ prediction that Korea’s growth would stay at around 2 percent to 2.5 percent.

Market observers claimed that the central bank is considering revising its growth outlook down by 0.1-0.2 percentage points.

While he said indexes for private consumption were improving, he reiterated that there are lingering external risks, such as China’s economic slowdown, the likelihood of a U.S. rate hike and uncertainties held by some emerging countries.

Some critics warn that it is risky for Korea to push for another rate cut at the present stage, citing the U.S. Federal Open Market Committee’s rate-setting meeting, scheduled for Oct. 27-28.

Issuing the possibility of massive capital flight out of the local market in the scenario of a rate hike in the U.S., one economics professor said that Korea -- under that assumption -- would have no choice but to raise the rate again, which could bring about confusion and have a negative impact on the local economy.

By Kim Yon-se(kys@heraldcorp.com)