South Korea central bank to stay pat in Jan, but cut thought likely soon

SEOUL: South Korea's central bank is expected to hold fire this week but is believed likely to cut its policy interest rate to a record low soon to help the economy weather depressed global demand, a Reuters poll found.

Twenty-seven out of the 34 analysts surveyed forecast the Bank of Korea would hold the base rate steady at 2.0 percent at Thursday's meeting, whereas the other seven analysts saw a cut in the rate to record-low 1.75 percent.

Still, 16 of the 27 analysts predicted a cut within the next five months. Six analysts saw a hike as the next move in the 7-day repurchase agreement rate, which was cut on three occasions since the current easing cycle began in May 2013.

"The government is pushing for structural reform in various sectors of the economy and so it's difficult to think about an immediate policy easing despite all those uncertainties inside and outside the country," said Yoon Yeo-sam, a fixed-income analyst at Daewoo Securities.

Yoon was among those predicting at least one more rate cut sometime between next month and June.

The Bank of Korea is also set to revise its economic forecasts for 2015 and set new projections for 2016 on Thursday, but revisions are widely expected to be minimal.

Bonds rallied on Monday after President Park Geun-hye said policy authorities would respond to the interest rate issue in a timely manner through cooperation, but Park's policy secretaries clarified later the comment was misinterpreted.

The finance minister and central bank governor have both been vocal in the new year over the positive effects that falling global oil prices will have on South Korea, which is the world's fifth-largest crude oil importer.

Both have also waved aside the danger of deflation any time soon, saying that the currently low inflation stems from supply-side factors instead of demand-side ones.

Inflation in December eased to an over 15-year low.

A separate survey of bond market participants by the Korea Financial Investment Association showed on Tuesday that 96.4 percent of the respondents predicted no change of the rate this week, reflecting concerns over increasing household debt.