BOK comes under growing pressure to cut key rat

The Korea Times

The Korea Times

Finance

Wed, December 6, 2023 | 13:32

BOK comes under growing pressure to cut key rat

Posted : 2014-09-10 15:27

Updated : 2014-09-10 17:38

BOK Governor Lee Ju-yeo

By Kim Rahn

Bank of Korea (BOK) Governor Lee Ju-yeol is facing growing pressure to cut the base interest rate once more, as major economies are tending to expand their monetary easing policies.

Analysts expect the central bank to reduce the rate one more time this year, following the most recent cut in August.

Last month when the bank dropped the rate from 2.5 to 2.25 percent, the first cut in 15 months, market-watchers expected there would not be an additional cut for a while. However, the situation has since changed.

The European Central Bank unexpectedly reduced its key rate on Sept. 4 from 0.15 to 0.05 percent, a new record low, showing that the EU is on a quantitative easing track similar to that of the U.S.

Some analysts expect Japan may also have additional monetary easing as the country's growth has slowed.

The EU and Japan's monetary policies are expected to keep the won strong, hurting Korean exporters' competitiveness.

Korea's economic growth is also lower than forecast. The BOK said the country's real gross domestic product (GDP) grew 0.5 percent in the second quarter compared with the previous quarter, the lowest level of growth in seven quarters.

Moreover, the second-quarter nominal GDP contracted 0.4 percent, the first decline since the global financial crisis in 2008.

These situations are pushing the BOK to make an additional rate cut within the year.

The government is also expecting another cut, sending indirect signs to the central bank to coordinate policy with its stimulus programs.

"The international economic situation is changing rapidly. We'll monitor the EU and the U.S. interest rate policies closely and take preemptive action to cope with the impact," Finance Minister Choi Kyung-hwan said Friday.

Analysts expect the BOK to freeze its key rate this month. But it may lower the rate in either October or November, as the bank will need time to see the influence of the August rate cut.

"The BOK may revise down this year's growth forecast in October and cut the base rate in November," Korea Investment & Securities economist Jeon Min-kyu said. "If the slow economic growth continues a couple of months more, the bank will have no choice but to cut the rate."

Woori Investment & Securities analyst Park Jong-yeon also said the central bank is expected to cut its growth and price forecasts in October as the won remains strong.

"Korea's monetary policy is relatively tight compared to other major countries, and this will increase the need for an additional rate cut," Park said.

rahnita@koreatimes.co.kr