Ex­perts split over course of BOK’s rate pol­icy

The Korea Times - - FINANCE - By Lee Kyung-min [email protected]­re­atimes.co.kr

Eco­nomic ex­perts have been split over whether the Bank of Korea (BOK) will lower its key rate fur­ther, following a 25 ba­sis points cut by the U.S. Fed­eral Re­serve, Oct. 30 (local time).

Some say the U.S. rate cut re­duced the fear of for­eign cap­i­tal out­flow from Asia’s fourth-largest econ­omy, thereby giv­ing the BOK more room to ma­neu­ver amid de­clin­ing ex­ports and weak­en­ing con­sump­tion over the past few months

How­ever, oth­ers say more pa­tience is re­quired to ac­cu­rately as­sess the “rapid” 50 ba­sis points cut over the past three months.

The U.S. Fed low­ered in­ter­est rates for the third time this year to a range of 1.5 per­cent to 1.75 per­cent, as the world’s largest econ­omy con­tin­ues to ex­pe­ri­ence slow­ing growth amid its drawn-out trade feud with China and weak global trade ex­pan­sion.

Park Chong-hoon, chief econ­o­mist at SC First Bank, said the BOK would prob­a­bly take a wait-and-see ap­proach rather than re­sort­ing to an out­right cut in the near fu­ture.

“The U.S’ 25 ba­sis point cut is deemed a mid-cy­cle ad­just­ment in an eco­nomic ex­pan­sion, as in­di­cated by Fed Chair­man Jerome Pow­ell who nonethe­less strongly sug­gested the rates would hold steady for the fore­see­able fu­ture. This is rather a mix of both hawk­ish and dovish stances re­quir­ing fur­ther data anal­y­sis,” Park said.

Also to be noted were some ma­jor changes in the post-meet­ing state­ments in­ter­preted as the Fed’s hawk­ish turn.

The Fed re­moved a key clause — “act as ap­pro­pri­ate to sus­tain the ex­pan­sion” — and re­placed it with “as­sess the ap­pro­pri­ate rate path.”

The stance in­ter­preted by some as tight­en­ing was off­set by his com­ment on in­fla­tion that was taken as dovish.

“We just touched 2 per­cent core in­fla­tion to pick one mea­sure. Just touched it for a few months and then we’ve fallen back. So I think we would need to see a re­ally sig­nif­i­cant move up in in­fla­tion that’s per­sis­tent be­fore we would con­sider rais­ing rates to ad­dress in­fla­tion con­cerns,” Pow­ell said.

Yun Chang-hyun, an econ­o­mist at the Univer­sity of Seoul, said Korea’s cen­tral bank will reach a de­ci­sion that best helps the fast-de­te­ri­o­rat­ing econ­omy.

“The rate cut means that the cen­tral bank ac­knowl­edged that the econ­omy is in bad shape. It has been only a cou­ple of months since it cut the rate by 50 ba­sis points, so it will need some time to see whether the ex­pan­sion­ary pol­icy has had the de­sired ef­fect,” Yun said.

BOK Se­nior Deputy Gov­er­nor Yoon Myun-shik said Thurs­day that the Fed rate cut gives the cen­tral bank more room as fear of a cap­i­tal out­flow has been re­duced.

Ali­cia Gar­cia-Her­rero, Asia-Pa­cific chief econ­o­mist at Natixis Global Mar­ket Re­search, said the Fed rate cut pushes the BOK for one more cut by year end.

“On the is­sue of un­con­ven­tional mone­tary pol­icy, it is clearly too early,” she said.

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