Citibank Expects Rate Hike
By Na Jeong-ju
Staff Reporter
Citigroup said, Thursday, the Bank of Korea (BOK) may increase its benchmark short-term interest rate once within three months, revising its earlier forecast that the rate will be kept unchanged throughout this year.
The revision reflects concerns about strong growth of liquidity in the market and stronger indications of economic recovery, Citigroup economist Oh Seok-tae said in a report. Oh, however, said the rate increase will occur only once this year, citing weak recovery in domestic consumption and low inflationary pressure.
``Based on recovery in industrial production and corporate investment and strong liquidity growth, the BOK is forecast to raise its call rate by 25 basis points within three months,'' Oh said.
Citigroup earlier forecast a freeze of call rate throughout this year, saying U.S. economic slowdown will negatively affect the country's exports, the key economic growth engine for South Korea.
The report came one day before the central bank decides on its call rate target for June. Oh forecast the bank will leave the interest rate steady at 4.5 percent for the 10th consecutive month.
In a weekly briefing on Thursday, Vice Finance and Economy Minister Cho Won-dong said the Korean economy is showing ``stronger signs of economic recovery.'' A Korea Development Bank survey for the business sentiment, which was released on Thursday, showed more companies are optimistic about the outlook of their industrial performances in the third quarter.
Expectations for a call rate hike are getting stronger here amid strong exports and reviving consumer spending. Morgan Stanley also forecast a call rate increase in a few months on Thursday, saying the pace of economic growth will become faster on recovery in domestic spending and strong exports.