The Bank of Korea may push for another rate cut within the second quarter of this year, pulling the key interest rate from the recently fixed 1.75 percent down to 1.5 percent, according to some industry observers.
“It only took a month for the BOK and the government to give up on their previous hawkish stance and switch their rate policy,” Shin Dong-jun, a researcher at Hana Daetoo Securities, said Monday.
“Considering the persisting calls for effective demand, the key rate will probably fall further.”
Shin suggested that the additional markdown could take place as early as April.
“As Korea has an exceptionally high level of private debts, an additional rate cut is necessary as it will alleviate the burden of repayment,” the economist said.
He also advised that the optimal time to purchase bonds will be immediately after the central bank cuts the rate to 1.5 percent, before the bond interest rates rebound.
Moon Hong-chul, a researcher at Dongbu Securities, said that as global markets continue to ease their monetary policy, the BOK is highly likely to follow suit and implement an additional rate cut.
“The government has more to gain from improving the quality of standing debts, than from shrinking the economy,” Moon said.
Kwon Young-sun, a senior economist at Japan-based Nomura Securities, saw his projection from December fulfilled as the central bank lowered the rate to 1.75 percent in the first quarter.
“Considering Korea’s finances and market prices, there is yet more room (for the BOK) to reduce the key rate further,” said Kwon, who also expected another reduction to 1.5 percent by April.
Meanwhile, observers skeptical about the second rate cut possibility claim that the BOK will not readily make the move as the U.S. is expected to hike its key rate this year.
