The Bank of Korea is widely expected to keep the benchmark rate steady at its rate-setting meeting on Thursday, a survey by Korea Financial Investment Association showed on Tuesday.
The KOFIA survey, conducted on local bond dealers, brokers and analysts between Sept. 27 and Oct. 3, revealed that 96.3 percent of respondents see no change in the monetary stance of the BOK this month.
The respondents cited the growing uncertainties in the global economy following the credit rating downgrades of European countries and the slowing growth of the local economy as key reasons for holding the rate unchanged.
The latest turmoil both at home and abroad outweighs worries over rising inflation and an unstable currency market, the survey said.
Earlier this month, the BOK kept its benchmark interest rate steady at 3.25 percent for a third month running, citing greater risks in the global economy.
Analysts also said the central bank has found another reason to freeze the rate in its upcoming rate-setting meeting: a slower rise in consumer prices. Back in August, inflation jumped 5.3 percent from a year earlier, alarming policymakers at the government’s finance ministry and top officials at the central bank. In September, the growth rate slowed significantly to 4.3 percent, a level that is still above the BOK’s target band and yet signals it seems to have already peaked this year.
Government data show that vegetable prices, which boosted overall inflation in the past months, began to lose steam from September. Prices of foreign raw materials also stabilized from August, though they bounced back a notch recently.
With inflation tamed to some extent, the global economic slowdown is looming large, a development that will likely see the central bank keep its stance unchanged.
The European Central Bank has stepped up its efforts to inject more liquidity into troubled banks, but the latest downgrades of the sovereign rates for Spain and Italy demonstrate the depth of the problems in the eurozone. The U.S., one of the key export markets for Korea, is also unlikely to see a dramatic upturn for its economy.
“One of the concerns is that the instability in the financial market might spill over to the real economy,” said Yoon Yeo-sam, analyst at Daewoo Securities. “Unless there’s a turnaround in the economic slowdown, the Bank of Korea is unlikely to tighten its monetary policy in the near future.”
Global investment banks predict that Korea’s growth rate will also slump to 3 percent next year. Some banks believe the 2012 growth rate of Asia’s fourth largest economy might slide to 2 percent, citing the negative outlook in the global market.
A growing number of economists at local brokerages now forecast that the BOK might not change the rate through the first quarter of next year.
