July 10, 2018 / 8:57 AM / 9 months ago

South Korea policy rate seen on hold in July, could be raised by year-end: Reuters poll

SEOUL (Reuters) - South Korea’s central bank is expected to keep its 1.5 percent cash rate unchanged when it meets on Thursday, a Reuters poll has found, but it may well lift the rate before year-end if monetary policies tighten globally.

FILE PHOTO - The logo of the Bank of Korea is seen on the top of its building in Seoul, South Korea, March 8, 2016. REUTERS/Kim Hong-Ji/File Photo

All but one of the 16 economists in the Reuters poll predicted the Bank of Korea would stay at 1.50 percent KROCRT=ECI, as the sluggish job market and uncertainty from U.S.-China trade friction limits its readiness to raise borrowing costs.

But 12 of the 16 respondents said that the BOK would raise its policy interest rate before year-end to curb any potential capital outflows as the U.S. Federal Reserve continues to raise its rates.

“The BOK won’t be able to raise rates now, given how shockingly bad the May job report was,” said Kang Seung-won, an economist with NH Investment & Securities.

Kang says a rate hike is likely in August as the BOK will try to stay on course with the U.S. Federal Reserve and the European Central Bank, which are expected to raises their rates and scale back monetary stimulus measures this year.

“Domestic job market conditions could also improve in the months ahead as the government’s extra budget will be spent this month and next,” Kang said.

Statistics Korea said South Korea added 72,000 jobs in May from a year earlier, well below the annual 123,000 jobs gained in April, marking the weakest increase in more than eight years.

That, together with falling exports, cast some doubt on any policy tightening this year. The Bank of Korea’s last rate move was a 25 basis point hike to 1.50 percent in November.

June exports were down 0.1 percent from a year earlier, as shipments of cars and consumer electronics fell sharply, slumping from a 13.2 percent jump in May.

“Barring rising U.S. interest rates, the BOK may not be in rush to raise rates again in the near term,” said Oh Suk-tae, an economist at Societe Generale.

The BOK will also revise its growth outlook on Thursday as part of a quarterly review. It currently sees the economy growing 3 percent this year.

After Thursday’s meeting the central bank has three more rate reviews this year in August, October and November.

Reporting by Joori Roh and Hayoung Choi; Additional reporting by Jeongmin Kim and Yuna Park; Editing by Eric Meijer

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