A growing number of major foreign investment banks have forecast South Korea’s central bank will lower its key interest rate next year as inflationary pressure loses steam, a report showed Tuesday.
The Bank of Korea froze the seven-day repo rate at 3.25 percent for the fifth straight month in November, citing downside growth risks such as Europe’s sovereign debt crisis and continued global financial market jitters.
While some foreign investment banks were still betting the BOK will stand pat on the benchmark rate until late next year, Goldman Sachs and others have projected a rate cut amid weakening inflationary pressure and slowing economic indicators, according to the report by the Korea Center for International Finance.
British banking giant Standard Chartered and French heavyweight Societe Generale retained their initial stance, forecasting the BOK will not change the key rate until the end of next year.
The two banks said given the central bank’s firm will to normalize rates, it is unlikely the BOK will move to lower the benchmark rate.
Goldman Sachs, however, shifted its position. The U.S. investment giant forecast the central bank will cut the rate by 50 basis points next year, including a 25 basis point cut in the first quarter, the report showed.
Meanwhile, the investment banks forecast South Korea’s inflation will cool to around the 3 percent level next year, amid a slowing economy and stabilizing food and energy prices.
Goldman Sachs and Standard CHartered said consumer inflation is likely to weaken to the mid-3 percent range as food and energy prices settle down, the report said.
Others agreed, lowering their 2012 consumer inflation outlook for South Korea. Royal Bank of Scotland cut its outlook to 3 percent from 3.2 percent, while Citigroup lowered it to 3 percent from 3.3 percent, according to the report.
In a separate report issued by the KCIF, a total of 10 foreign investment banks projected South Korea’s economy, Asia’s fourth-largest, to grow 3.6 percent next year. Their outlook for next year’s consumer inflation stood at 3.1 percent.
