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Wed, February 2, 2022 | 23:11
Policies
BOK likely to cut key rate in Oct.
Posted : 2019-09-08 17:02
Updated : 2019-09-08 17:43
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Bank of Korea Governor Lee Ju-yeol bangs the gavel at the beginning of a monetary policy meeting held at the central bank Aug. 30. / Korea Times file
Bank of Korea Governor Lee Ju-yeol bangs the gavel at the beginning of a monetary policy meeting held at the central bank Aug. 30. / Korea Times file

By Kim Bo-eun

The Bank of Korea (BOK) will likely cut its key rate next by 25 basis points in October as the Korean economy is facing growing downside risks, according to economists Sunday.

The central bank slashed the rate to 1.5 percent from 1.75 percent in July and kept the rate unchanged in August.

The economists say the escalating trade feud between the United States and China continues to weigh heavily on the Korean economy, adding the ongoing conflict with Japan has also made things more difficult for many domestic exporters.

In addition, uncertainty lingers over other external factors including Brexit and Hong Kong's protests, they said.

"Circumstances are deteriorating on the whole, which point to the need for a rate cut," Yun Chang-hyun, a professor at the University of Seoul, said.

"Yet this must be done with caution, taking into consideration factors such as capital flight," he said.

Park Jae-ha, an economist at the Korea Institute of Finance, agreed.

"Considering consumer prices and external circumstances including the trade issue with Japan, it appears the time is ripe for fiscal policies that can stimulate the economy," he said.

The BOK has hinted at a possible rate cut by saying things have turned from bad to worse for Korea in recent months.

"It is true that various external risks have made it difficult for Korea to achieve its growth target," BOK Governor Lee Ju-yeol said in a press conference last month.

The prevailing view is that Korea will not be able to achieve the BOK's GDP growth forecast of 2.2 percent for this year, much less the Ministry of Economy and Finance's estimate of 2.4 to 2.5 percent.

The growth figures for the first and second quarter back this up ― the economy contracted in the first quarter by 0.4 percent and in the second quarter grew by just 1 percent.

Internal circumstances are also gloomy. The Consumer Price Index fell 0.04 percent to 104.81 in August from 104.85 a year earlier, marking the first time the consumer price fell since 1965 when Statistics Korea began compiling data.

The gross domestic product (GDP) deflator for the second quarter also decreased 0.7 percent from a year ago, the worst since the first quarter of 2006. The figures have been declining since the fourth quarter of 2018.

Based on these circumstances, attention is growing over the likelihood that the BOK will further cut the key rate. It cut the rate from 1.75 percent to 1.5 percent in July, and froze the rate the following month.

The next rate cut is likely to take place Oct. 16, when the next monetary policy meeting is set to take place.



Emailbkim@koreatimes.co.kr Article ListMore articles by this reporter



 
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