South Korea's central bank will probably cut its benchmark interest rate on Friday for the third time in a month, intensifying efforts to head off a punishing downturn resulting from the global financial crisis, a Reuters poll showed.
A survey by the Korea Securities Dealers Association also said the Bank of Korea would cut rates. The Reuters poll showed that 13 of 14 analysts expect the Bank of Korea to cut its base rate of 4.25 percent by at least 25 basis points, joining other central banks globally that are cutting rates to fend off the worst financial crisis in decades.
In addition, the rate could be cut in the next six months to 3.25 percent, the median of the poll showed. Australia and Vietnam sliced their respective interest rates this week.
The Bank of England and the European Central Bank are expected to follow suit on Thursday. One analyst projected the central bank would leave rates unchanged because financial markets have stabilised quickly after a record rate cut of 75 basis points at an emergency Bank of Korea meeting last week and other measures by authorities.
The government has put together a $130 billion package to shore up the financial sector, has proposed an $11 billion economic stimulus package and entered into a $30 billion swap agreement with the US Federal Reserve to shield the economy from the global financial storm.
Analysts forecast more rate cuts within the next six months. The poll's median suggested the rate would stand at 3.25 percent in six months time. SC First Bank forecast it would stand at 2.00 percent in six months time.
"A bigger risk of economic downturn is anticipated in the first half of 2009, affected by the lower growth of China and the US" said Chun Chong-woo, an economist at SC First Bank. Chun said private consumption would suffer from job cuts and a negative wealth effect from tumbling financial markets, with the government's pump-priming measures providing some stimulus.
Earlier on Wednesday, the Korea Securities Dealers Association said 75 percent of 136 bond traders surveyed predicted a rate cut on Friday. The Bank of Korea slashed the benchmark rate by 75 basis points to 4.25 percent on October 27, its biggest ever one-step cut, at its first emergency action since September 2001. The move came just over two weeks after a 25-basis point cut, which ended a 3-year tightening cycle.
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