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South Korea's Central Bank Expected to Freeze Key Interest Rate Again

Strategic Insights

— 1 min read

The Bank of Korea (BOK), South Korea's central bank, is expected to maintain its key interest rate at a record low of 2 percent in November, according to a poll of 16 economists at 17 financial institutions. The poll, conducted by Yonhap Infomax, showed that only one analyst predicted a 0.25 percentage point rate hike. The economists cited economic uncertainty at home and abroad, as well as tamed inflationary pressure and stabilizing asset prices, as reasons for the expected rate freeze.

Key Takeaways:

  • The Bank of Korea is expected to keep the benchmark seven-day repo rate steady at 2 percent for a ninth straight month, with 16 economists predicting no change in the interest rate.
  • Only one analyst, Oh Chang-sup from IBK Securities, predicted a 0.25 percentage point rate hike, citing a possible rate hike in the first quarter of next year after the central bank assesses the pace of economic recovery.
  • The economists cited economic uncertainty at home and abroad, tamed inflationary pressure, and stabilizing asset prices as reasons for the expected rate freeze.
  • A set of economic data showed that South Korea's economy grew 2.9 percent in the third quarter, the fastest quarterly expansion in more than seven years.
  • The BOK cut the key rate by a total of 3.25 percentage points between October last year and February in an effort to put the brakes on a sharp economic freefall.
  • Some analysts still bet on a rate increase this year, citing the high level of housing prices and commodity prices on an upward trend.
  • A fixed-income analyst at Taurus Investment & Securities Co. noted that housing prices have maintained stable movement, giving the central bank leeway to take time before a possible rate hike.
  • The BOK's Governor Lee Seong-tae hinted a possible rate hike if housing prices continue to rise but softened his tone saying it did not mean an imminent rate increase.

Statistics:

  • 16 economists at 17 financial institutions predicted the BOK will keep the benchmark seven-day repo rate steady at 2 percent.
  • The economy grew 2.9 percent in the third quarter, the fastest quarterly expansion in more than seven years.
  • The BOK cut the key rate by a total of 3.25 percentage points between October last year and February.

Sources:

  • Yonhap News Agency
  • Yonhap Infomax
  • IBK Securities
  • Taurus Investment & Securities Co.
  • SK Securities Co.
  • Asia Pulse
  • The Korea Herald
  • Yonhap News Agency

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