South Korean central bank holds rates

South Korea's central bank held fire on Friday, keeping its cash rate steady after last month's policy easing, but its cautious remarks on the global economy had many analysts predicting another rate cut within months. The Bank of Korea left the base rate unchanged at 2.75 percent in a unanimous vote, as expected, after a 25 basis-point reduction last month, but said any recovery in the global as well as the local economy would be very slow.
In a Reuters survey conducted after a Bank of Korea governor's news conference, eight out of 13 analysts polled predicted another rate cut between January and March next year in what would be a third policy easing in less than 12 months. "There has been no evidence so far suggesting that the economy will recover quickly," Governor Kim Choong-soo told reporters, even though the central bank has said in two statements that the slowdown appeared to be abating.
Neither the rate decision nor Kim's remarks appeared to move markets in Seoul much, which were more influenced by other markets in the region and a batch of generally bullish economic data released by China throughout the day alongside China's leadership congress.
"As of now, the most important issue is the US fiscal cliff risk, and so we need to wait and see how it turns out," said Shin Dong-su, fixed-income analyst at NH Investment & Securities.
The BOK's Kim warned about weak global economic conditions, with the euro zone grappling its debt crisis while the US faces a bruising negotiation to avoid crashing over a $600 billion fiscal cliff of tax hikes and spending cuts. Over the past month, central banks around the region either loosened their policy further or at least maintained an easy stance to encourage consumers and companies to spend more at home while demand from abroad rebuilds.
In South Korea, minutes from the October policy meeting showed central bank board members expressed concerns about a possible sharp drop in the growth potential of Asia's fourth-largest economy from an extended period of low growth. Central bank estimates last month showed South Korea's export-reliant economy posted virtually no growth in the July-September quarter as companies slashed capital investment on production plant as shipments to China and Europe dwindled.