Bank of Korea Governor Lee Ju-yeol

South Korea’s central bank will opt to save its policy ammunitions and choose inaction in the rate-setting meeting this Friday to study the storm developments in the external trade environment, a survey showed.

In a poll by Maeil Business Newspaper, 10 analysts unanimously predicted that the Bank of Korea (BOK) will freeze the policy rate at 1.50 percent on Friday, following its surprise cut by a quarter percentage point last month.

But they saw the additional cut to come in either the Oct. 17 or Nov. 29 meetings – or even both times, depending on economic developments on the trade front.

“The bank has rarely resorted to back-to-back interest rate cuts in the past,” said Lee Mi-sun, an analyst at Hana Financial Investment.

Park Tae-geun, analyst at Samsung Securities, also expected the central bank to sit pat as a rate cut at times of extreme market volatility could be risky and prompt a rush of capital outflow.

There have been only two instances of back-to-back rate cuts in Korea. One was in 2001, when the BOK slashed lending rates four times in a row in the aftermath of the dot-com bubble burst and the 9/11 terrorist attacks. The other was during the global financial meltdown of 2008 and 2009.

Another rate cut would bring the country’s benchmark rate to an all-time low of 1.25 percent, leaving the central bank little maneuvering room against potential headwinds down the road.

Unpredictability on the external front with mixed views about a looming recession is also likely to check the central bank from making a decisive action.

“The bank is expected to pay more attention to economic movements this time instead of taking a rate move,” Lee Geun-tae, senior researcher at LG Economic Research Institute, projected.

In a closely watched speech given at Jackson Hole last Friday, Federal Reserve Chair Jerome Powell signaled the U.S. central bank would make additional cuts soon after delivering its first cut to reverse the tightening course for the first time in a decade. But he was reluctant to specify the exact timing or size of the move, weighed by the intensifying trade war between the U.S. and China that has clouded the outlook for the global economy. The next Fed meeting is set for Sept. 17-18.

“It would be hard for the BOK to take steps ahead of the Fed,” noted Min Kyung-won, economist at Woori Bank.

Experts are in general agreement of another cut in the coming months while some even think the policy rate could touch a new historic low of 1.00 percent.

Kim Yeong-ik, professor of economics at Sogang University, said the markets have already priced in the prospect of two additional cuts, with the three-year bond yield approaching 1.0 percent.

By Kim Yeon-joo and Kim Hyo-jin

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]