SEOUL: South Korea's central bank is expected to cut interest rates on Wednesday for the second time in three months in a further bid to re-energize an underpowered economic recovery, a Reuters survey found on Monday.
Of 30 analysts polled, 18 forecast the Bank of Korea would cut its seven-day base rate at its meeting on Wednesday. Six of the remaining 12 expect the central bank to cut rates in November instead of this month, after third-quarter GDP data due on Oct. 24 is published.
"The central bank isn't viewing growing household debt as a serious problem and some board members showed signs they could vote to cut rates further in last month's minutes," said Kim Jina, a fixed-income analyst at IBK Securities.
"The Bank of Korea will likely cut the growth forecast and rates on Wednesday," Kim said.
A downgrade is expected when the Bank of Korea releases the latest economic growth forecast on Wednesday, after Bank of Korea Gov. Lee Ju-yeol said last week that growth is expected to be in the mid-3 percent range this year.
The central bank currently forecasts the economy will grow 3.8 percent this year and 4.0 percent the next.
Regardless of their view on the rate decision this week, most economists agreed if the Bank of Korea decides to lower rates again, it would be under further pressure from the government, as was seen to be the case with the August cut.
Finance Minister Choi Kyung-hwan has not explicitly discussed the future direction of interest rates in public but has repeated that the economy is still weak and the ongoing recovery is slow.
The minister also reiterated on the sidelines of a series of international meetings over the weekend in the United States that there was "little difference" between the government and central bank in their understanding of the economic situation.
"Right now the main driving force behind the bond market is Choi. If the central bank doesn't cut this week it'll do it within the year," said Shin Eol, a fixed-income analyst at Hyundai Securities.
"Even after a second rate cut, pressure to align policy with the government will still live on," Shin said.
Bond yields have steadily drifted down in recent weeks on expectations for another rate cut. The 1-year treasury bond yield ended Friday's session at 2.164 points, roughly 10 basis points lower than the policy rate.
Meanwhile, recent economic indicators have been mixed, as manufacturers reported a decline in export orders in September while inflation hit a seven-month low last month, giving the central bank room to cut interest rates further.
Exports in September grew at their fastest pace in nine months, while imports rose at their quickest since early 2012. Housing prices across South Korea have been on a steady rise, growing for a 13th month in September thanks to an easing in regulation and low interest rates.
All but one of the 18 analysts who saw a rate cut this week said the base rate would be lowered by 25 basis points, while the remaining analyst said the central bank would shave off 10 basis points.
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