Bank of Korea tipped to freeze key rate for September

SEOUL, Sept. 6 — South Korea's central bank is widely expected to hold its key interest rates steady for September amid no clear signs of an economic recovery and tamed inflation, analysts said Sunday.

Bank of Korea (BOK) Gov. Lee Seong-tae and his six fellow policymakers are scheduled to hold a rate-setting meeting on Thursday. The seven-day repo rate has been frozen at two percent since March.

The prediction of a rate freeze is grounded on an assessment that the South Korean economy, Asia's fourth-largest, has yet to show more signs of a rebound from its recent slump.

In the second quarter, the country's gross domestic product expanded 2.6 percent from three months earlier, but contracted 2.2 percent from the same period a year earlier.

On top of that, corporate capital spending tumbled 15.9 percent on-year, goods exports fell 4.2 percent and the number of employed people dropped 0.3 percent, according to government data.

"We need to watch the economy's third-quarter performance more closely as the record for the second quarter was boosted by tax benefits and increased fiscal spending," a central bank official said.

South Korea's consumer inflation remained relatively low at 2.2 percent in August, though it grew at the fastest pace in three months.

Market watchers expect a debate over a rate increase to heat up starting in October.

After August's rate-setting meeting, BOK Gov. Lee hinted at considering a rate hike from the fourth quarter, saying the "central bank will keep a wary eye on economic trends during the third quarter."

Most analysts predict the central bank will mull reducing the benchmark interest rate during the October-December quarter.

"If the third-quarter growth rate exceeds one percent, it will give the BOK room to cut interest rates," said Yang Jin-mo, an analyst at SK Securities Co. "The central bank may conduct a rate cut in November." (PNA/Yonhap)

LDV/rsm

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