Foreign investment banks have contrasting opinions on the course of Korea’s policy rate as some bet on a rate freeze while others expect a rate cut, citing growing uncertainties stemming from eurozone risks, a report showed Wednesday.
Korea’s benchmark seven-day repo rate currently stands at 3.25 percent after the Bank of Korea froze the rate for the seventh straight month in January.
Four of 10 tallied investment banks, including Barclays Capital and Citigroup, said the BOK is expected to leave the policy rate unchanged this year, according to the report by the Korea Center for International Finance.
Barclays said the central bank is unlikely to move the rate, given the country’s solid export momentum and employment conditions, while Citigroup thought the BOK might opt to adjust other policy means such as the reserve rate or the loan cap on soft loans to small and medium enterprises.
In contrast, six other investment banks, including Morgan Stanley and HSBC, forecast a rate cut would take place as early as the January-March period, citing easing inflationary pressure and slowing global economic growth, the report showed.
United Overseas Bank said the central bank may opt for a rate cut in the first quarter if January’s consumer price inflation comes in lower than 4 percent and eurozone risks soar in the first quarter.
Nomura projected the BOK would cut the rate in April and opt for an additional slash in July if inflationary pressure and economic growth both slow.
However, the tallied investment banks didn’t completely rule out the possibility of a rate cut or freeze.
Bank of America-Merrill Lynch and Barclays said the BOK may slash the rate if the local economy expands at a pace slower than 3 percent.
Deutsche Bank and BNP Paribas said eyes should be kept on Middle East tensions, indicating a rise in energy prices that could affect the central bank’s decision.
A separate report by the KCIF issued late last month showed a total of six investment banks projected the country’s policy rate to reach 3.15 percent at the end of this year.
