BOK expected to stand pat this week over growth risks: experts

South Korea's central bank is expected to keep its benchmark rate unchanged at 3.5 percent for the sixth consecutive time this week, with inflation continuing to ease amid lingering concerns about growth, according to experts Sunday.

According to a survey of six economic experts conducted by Yonhap News Agency, all of them said the Bank of Korea (BOK) will likely decide to stand pat at its rate decision meeting Thursday.

A 2 percentage-point gap between the key rates of South Korea and the United States may put pressure on the BOK to increase its key rate, but the central bank will not be able to do so due to uncertainties over the country's economic recovery, they said.

"The U.S. could make another 0.25 percentage-point rate hike later this year … but South Korea has a very low possibility of an additional rate hike as it has a worse economy than the U.S.," Cho Young-moo, a senior researcher at LG Business Research, said.

The U.S. Federal Reserve kept its benchmark borrowing cost steady between 5.25 percent and 5.50 percent last month.

Park Jeong-woo, an economist at Nomura Securities, said a slump in consumption and a decrease in monthly household loans also raises the possibility of a rate freeze.

Government data showed retail sales, a gauge of private spending, fell 0.3 percent in August from a month earlier due to weak demand for durable and semidurable goods.

Household loans extended by banks rose 4.9 trillion won to 1,079.8 trillion won in September, according to BOK data. The monthly gain slowed from a 6.98 trillion-won rise in August.

"The BOK is maintaining its forecast that inflation will stabilize at around the 3 percent level in the future. ... It doesn't seem like a situation where the central bank should respond to the current market price with a rate hike," Park said.

Experts say the BOK's rate-cutting cycle is expected to begin in the second quarter of next year at the earliest.

"The BOK is expected to cut its rate twice from the second half of next year as the inflation target is likely to be reached in the third quarter after the core inflation stabilizes following a slowdown in domestic demand," Ahn Jae-kyun, an analyst at Shinhan Securities Co., said.

Source: Yonhap News Agency

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