The central bank in the Philippines also will conclude its monetary policy meeting and announce its decision on interest rates; the bank is tipped to hold steady at 3.00 percent. Yet exports declined for a 19th straight month and inflation remains far below the central bank’s target.
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The central bank will also be closely watching to see if parliament moves quickly to ratify an 11 trillion won ($10.01 billion) supplementary budget, with delays, if they occur, risking to weaken its stimulatory impact on the economy.
The central bank said the market should not be too concerned with the sudden appreciation of the Korean won against the USA dollar, explaining a stronger currency is natural following a sovereign credit upgrade and revived investor confidence. Lee Ju-yeol smiles while attending the central bank’s monthly rate-setting meeting in Seoul on August 11, 2016. Last month Lee made remarks that the previous rate cut and the government’s fiscal stimulus would support growth by about 0.2 percentage points. Though the government has urged speedy action, lawmakers haven’t approved it because of standoffs between members of the ruling party and opposition on issues such as deploying a US missile shield.
The Bank of Korea last month revised down its growth forecast from 2.8 percent to 2.7 percent this year, as well as its outlook for consumer prices increasing to 1.1 percent from 1.2 percent. Still, data released August 2 showed inflation at 0.7 percent remains far from that goal.
With inflation far below the 2 per cent target, the won relatively strong and exports struggling, the Bank of Korea (BoK) has reasons to ease, economists said. Currency strength won’t help the country pull out of its export slump.
Minutes from the BOK’s July decision – when the board unanimously voted to leave rates unchanged – showed one member saying that monetary policy should continue to be accommodative. South Korea’s lower bound for interest rate needs to be higher than key-currency countries, Lee said, adding that the central bank isn’t at the stage of considering zero rates or quantitative easing. S&P Global Ratings raised its long-term sovereign credit rating on Korea to “AA” from “AA-“.
Some have noted a need for an additional rate cut, but many others believe the BOK may be out of room at least for now as the country’s household debt continues to rise at a record pace, while the U.S. Federal Reserve is expected to hike its own rate before the year’s end.
Analysts at ANZ expect rates could be pushed below 1 percent early next year.
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South Korea’s three-year government bond yield closed at 1.22 percent on Wednesday, close to a record low, Korea Exchange prices show.
