BOK forecast to cut key rate by half point

SEOUL, Jan. 6 (Yonhap) -- South Korea's central bank is widely expected to slash
its key interest rate for January by 0.5 percentage point in a move to boost the
fast slowing economy, a poll showed Tuesday.
A total of 11 economists at 16 financial institutions predicted that the Bank of
Korea (BOK) will lower the benchmark seven-day repo rate to a record low of 2.5
percent on Friday, according to the poll by Yonhap Infomax, the financial news
arm of Yonhap News Agency. Four experts predicted a 0.25 percentage point rate
cut while one expected a freeze.
"Exports are sharply slowing down and domestic demand is deteriorating. To ease
downside risks to economic growth, the BOK is expected to carry out active
monetary easing," said Shin Dong-su, an economist at NH Investment & Securities
Co. "The central bank is forecast to further cut the rate to 2 percent."
In December, the BOK trimmed the key rate by a record full percentage point to an
all-time low of 3 percent in a move to cushion the local economy against the
fallout from the global financial turmoil. Since early October, it has lowered
the rate by a combined 2.25 percentage points.
A raft of recent economic data showed the South Korean economy is slowing more
sharply than expected, casting a gloomy outlook for Asia's fourth-largest
economy.
South Korean exports, the mainstay of economic growth, tumbled 17.4 percent in
December from a year earlier after falling 19 percent the previous month, as
demand for Korean products slumped amid a global recession. The government
expects the country's overseas shipments to grow a mere one percent this year,
the slowest pace in eight years.
Industrial output plunged 14.1 percent on-year in November, the sharpest fall in
history, reflecting the marked slowdown of the economy.
The South Korean economy grew 0.5 percent in the third quarter from three months
earlier, the weakest growth in four years. The BOK predicted that the economy
will expand just 2 percent this year, down from an estimated 3.7 percent advance
in 2008.
The government is targeting 3 percent growth in 2009 on the back of an economic
stimulus package, but President Lee Myung-bak said recently the Korean economy
may shrink in the first half amid the global economic downturn.
Meanwhile, the country's consumer prices grew 4.1 percent in December from a year
ago, the slowest pace in eight months due to falling oil prices.
Experts say the BOK is widely expected to continue its monetary easing probably
until the first half of this year.
BOK Gov. Lee Seong-tae said in his New Year message that the central bank will
focus its 2009 monetary policy on bolstering the fast slowing economy and
stabilizing financial markets as inflationary pressure is expected to ease.
"In a move to calm financial markets and kickstart the sputtering economy, the
BOK is forecast to cut the rate aggressively until the first half," said Park
Hyung-joong, an economist at Woori Investment & Securities Co.
sooyeon@yna.co.kr
(END)