Bank of Korea to Hold Rates on Thursday; Divided on Next Move
South Korea's central bank will hold interest rates steady on Thursday for a fourth straight month, while chances of another cut this year may be eroding as the world's biggest economies show signs of growth, a Reuters survey found.
Seventeen of 21 analysts surveyed forecast the Bank of Korea will hold its 2.75 percent policy rate steady at its February 14 meeting. The remaining four expect the central bank to cut rates to 2.50 percent.
The poll showed that chances of a cut have dimmed slightly in the course of a month as 10 analysts, including the four, said the Bank of Korea would deliver a cut this year - compared to 15 out of 22 analysts who saw a cut in January's poll.
Economists surveyed said the global economy is steadily improving, including most recent trade numbers from China which were better than expected. The global pick-up was good for export-led South Korea, although troubles remain at home.
"Uncertainties in the global economy are shrinking and improvements in the U.S. and China are becoming more visible," said Kong Dong-rak, a fixed-income analyst at Hanwha Investment & Securities in Seoul.
"The need for a cut is declining as there are signs that South Korea has passed the bottom."
South Korea's industrial output beat expectations to grow for a fourth consecutive month in December, and exports in January also topped expectations, suggesting that Asia's fourth-largest economy has turned the corner.
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Despite the positive data, roughly half the analysts surveyed were unconvinced that it will be smooth sailing for South Korea and incoming President Park Geun-hye who takes office later this month.
Analysts have pointed out glaring problems like the stubbornly sluggish real estate market as a downside risk to the economy as housing prices in South Korea fell 0.1 percent in January from December in the seventh month of decline.
Park vowed during her presidential campaign that she would introduce new measures to boost job growth and domestic spending, but has yet to announce detailed policies.
Policymakers worry that South Korean exports may be hit by a weakening Japanese yen, but most analysts have said it was unlikely that the Bank of Korea would choose to cut interest rates to fix that problem.
"It's more likely policymakers will turn to regulations rather than the policy rate to respond to the strengthening of the Korean won," said Kong.