South Korea central bank to keep rates on hold in Nov after Oct cut, eye Fed, BoJ

SEOUL: South Korea's central bank is expected to keep interest rates steady at 2.0 percent at its monthly policy meeting on Thursday as it assesses the effects of its rate cut in October as well as policy decisions in the United States and Japan.

All 33 analysts polled by Reuters forecast the central bank would keep the base rate on hold. It has never changed it in successive months except during times of crisis.

When asked about the Bank of Korea's next policy move, 14 analysts forecast it would cut rates, most likely at the start of 2015, while 10 said it would raise them later next year.

"The consensus has formed that the economy is bad. We'll keep struggling next year while the government will continue pushing out response measures," said Lee Jung-beom, an economist at Korea Investment & Securities.

"I think we've reached a point where the power from policy rate decisions has been nearly depleted."

Like its Asian peers, the BOK has been closely watching monetary policy changes in the US and Japan, as most of the risks South Korea's economy faces lie outside the country.

The recent decision by the Bank of Japan to dramatically expand its debt-buying stimulus drive has sent the yen tumbling, adding to the bank's worries as there is little it can do to counter the risk to South Korean export competitiveness.

The US Federal Reserve, meanwhile, is widely expected to start raising rates by next June, a Reuters poll found.

Governor Lee Ju-yeol has previously said the effects from rate cuts on the real economy are limited, while Finance Minister Choi Kyung-hwan stated last week that rate decisions cannot be made based on currency rates alone.

Exports in Asia's fourth-largest economy rose slightly faster than expected in October while a record trade surplus was posted on a sharp drop in imports due to softer demand for raw materials and capital goods.

Inflation still remains stubbornly outside the bottom tier of the central bank's inflation target band, pointing to sluggish domestic demand.

Department and discount store sales in October were estimated to have fallen for a second straight month while consumers are feeling less positive.

Some analysts said the focus would not be on the rate decision itself this week, but rather on whether the vote to hold rates would be unanimous.

The last time the vote on rates was unanimous was in June. All votes have been split since then.