South Korea’s central bank kept interest rates unchanged yesterday to assess the effect of a surprise rate cut in June and to study the impact of global uncertainties such as Britain’s vote last month to leave the European Union.
A Bank of Korea media official announced the monetary policy committee’s decision to hold the base rate at 1.25% without elaborating.
Market participants are expected to hone in on governor Lee Ju-yeol’s news conference from 11:20am (0220 GMT).
Twenty-eight of 29 analysts surveyed by Reuters said the Bank of Korea would leave interest rates at 1.25 %.
One forecast a cut to 1%.
A majority believed another rate cut will be implemented in coming months – possibly before the year’s end.
The central bank forecast growth this year would be around 2.8% at its last revision in April, but the bank is seen likely to downgrade that forecast later yesterday.
A supplementary budget to boost flagging growth is being prepared for implementation later in the year.
“Another rate cut is expected as early as September or possibly October.
Though the extra budget plan will be talked over during July and August, it will not bring significant changes in the economy in the third and fourth quarter, which means downside risks will still remain for the time being,” said Lee Sur-bee, a fixed-income analyst at Samsung Securities.
Markets were largely unmoved by the widely expected decision.
September futures on three-year treasury bonds were up 0.03 points to trade at 111.16 by 0108 GMT.
The won edged up 0.2% while local shares were down 0.4%.
A majority of the analysts see a second rate cut because the government’s supplementary budget plan, worth around 10tn won, was not seen as adequate to jump start the stalling economy.
Also, if the extra budget is only ratified much later in the year, most of its effects would not be seen until early next year, according to analysts.
The governor will give another news conference at 0500 GMT to explain why inflation has strayed so far and for such an extended duration from the central bank’s 2% inflation target.
The bank has said inflation is expected to pick up gradually in line with global economic recovery.