SEOUL, Jan 12 (Yonhap) — South Korea's central bank is forecast to keep the base rate on hold in January as the government is drumming up support for structural reform over short-term policies to fuel growth in Asia's fourth-largest economy, analysts said Monday.
A majority of 20 of 22 analysts surveyed by Yonhap Infomax, the financial news arm of Yonhap News Agency, projected the Bank of Korea (BOK) to keep the base rate unchanged at an upcoming policy meeting on Thursday. If the projection is on track, it will extend the BOK's wait-and-see stance to a third straight month.
South Korea's policy rate has been standing at a record low of 2 percent since October last year after the BOK lowered the rate by a quarter percentage point each in August and October to buttress the government's stimulus drive.
"The central bank won't use the rate cut card immediately as the government and the central bank's policy stance is set on structural reform despite growing external risks and no significant improvement in macroeconomic conditions," said Park Hyung-min, an analyst at Shinhan Investment & Securities, citing Greece's political instability and Russia's financial crisis as lurking woes.
The forecast comes as Seoul accelerates labor market and financial reforms to revitalize the economy after a set of stimulus measures, such as lowering rates and easing mortgage lending rules, did little to boost growth.
"Reform is not always easy and is bound to meet resistance, but there will be difficulty in reviving the economy, and eventually we will leave a big burden to our future generations… if we do not do what we should do now," President Park Geun-hye said in a Jan. 5 meeting that reviewed progress in major policies this year.
In a New Year's press conference on Monday, Park reiterated the importance of prioritizing structural reforms.
"To prevent falling into low growth, we should not miss the 'golden time' for revitalizing the economy and make structural reforms," she said.
Finance Minister Choi Kyung-hwan and BOK Gov. Lee Ju-yeol have also been voicing the need for structural reforms in their new year's messages as a falling birthrate and rapid aging are feared to dampen growth.
Analysts, meanwhile, brushed off views that the central bank may trim the base rate to counter weakening global oil prices, which are seen as putting downward pressure on inflation.
"Falling oil prices is actually positive for economic recovery, so we believe the central bank is unlikely to cut the base rate to cope with falling consumer prices," said Hong Jung-hye, an analyst at Shinyoung Securities.
There was still a minority view that the central bank will lower the rate as domestic demand continues to stutter.
"A rate cut scenario is feasible as the consumer sentiment index, an index the BOK has specifically mentioned, is not improving," said Hanwha Investment & Securities analyst Kong Dong-rak. "Given that the speed of economic recovery is insignificant and a debate over deflation has emerged, a rate cut is possible in the first quarter if not January."
The consumer sentiment index reached 102 in December, falling for a third straight month and reaching the lowest level since September 2013. The December figure is even lower than the post-Sewol level of 105 when the deadly sinking of the ferry Sewol hurt spending.
More than half of the polled analysts agreed with Kong that the BOK is likely to lower the rate to 1.75 percent during the first quarter, with 12 of the 22 analysts projecting a rate cut. (YONHAP)
