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Global invest banks betting on 1 to 3 rate cuts from BOK

Collected: 2017.02.15

Distributed: 2017.02.20

Source: Go Direct

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Some investment banks are betting on one or up to three additional cuts in short-term interest rates in South Korea regardless of the tightening pace in the U.S., turning bleak about the economy with fiscal actions likely to be limited as politicians and government would be entirely preoccupied with impeachment trial and presidential election.

Korea won’t be able to respond well to the challenges on the global front from protectionist policy of U.S. President Donald Trump and still-subdued global demand, said Morgan Stanley in recent report.

Since fiscal action would be limited, the only help to the economy would come from the central bank, it said, predicting quarterly cuts by 25 basis point from as early as this month to push down the benchmark interest rate to 0.50 percent from current 1.25 percent by the third quarter.

Goldman Sachs, Nomura Securities, HSBC, and JP Morgan predict a single cut from the Bank of Korea to keep the key interest rate at 1.00 percent until the end of 2017.

Most of foreign brokerage houses place Korea’s growth pace for this year at slightly over 2.0 percent, more pessimistic than the Bank of Korea’s 2.5 percent and the government’s 2.6 percent.

BOK Governor Lee Ju-yeol earlier this month admitted to reporters that conditions on the external front worsens prospects for this year’s economy since 40 percent of the gross domestic product comes from overseas.

But markets mostly rule out preemptive action from the traditionally conservative BOK amid political uncertainty. After the monetary policy meeting on Feb. 23, the next meeting takes place in April.

By Boo Jang-won

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