More and more market participants are betting that the Bank of Korea will lower the benchmark interest rate in March ― the first monthly rate-setting under the Park Geun-hye administration.
According to a poll of 132 bond traders conducted by the Korea Financial Investment Association, 46 percent of respondents predicted a rate cut at the meeting of the BOK’s monetary policy committee, slated for Thursday.
Some economists and analysts, however, claimed that a rate cut from the current 2.75 percent would not greatly contribute to revitalizing the Korean economy.
Morgan Stanley, in a report compiled by the Korea Center for International Finance, predicted that the government would see only a marginal boost in economic growth even if the central bank chose to lower the benchmark rate.
The investment bank said rate cuts would not be effective in boosting the sluggish property market, though monetary easing could boost private consumption.
Morgan Stanley argued that the government should ease regulations in the real estate sector, stressing that investor sentiment was significant when it came to propping up the property market.
Some investment banks said that artificial depreciation of the Korean currency versus the U.S. dollar via rate cuts would not induce steady growth of the corporate sector’s exports.
They said export growth could be boosted by global demand rather than the BOK’s monetary policy.
In its previous survey of bond dealers in February, the Korea Financial Investment Association found that only 15.2 percent of the respondents anticipated a rate cut. The BOK kept the rate untouched at 2.75 percent last month.
While the number of traders forecasting a cut increased, a larger portion still (53.8 percent) predicted that the BOK would eventually freeze the rate for the fifth consecutive month in March.
That portion of respondents shared the view that “it is premature for the BOK to pick a rate cut at the present stage.” They pointed out that the Park administration had yet to draw up a concrete economic policy direction.
By Kim Yon-se (firstname.lastname@example.org