April 11, 2017 / 6:11 AM / 3 months ago

PREVIEW-S.Korea c.bank seen on hold as focus turns to U.S. currency report

3 Min Read

* For poll details check: reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=KROCRT%3DECI

* All 21 economists surveyed see base rate kept at record low of 1.25 pct on April 13

SEOUL, April 11 (Reuters) - South Korea's central bank is expected to leave interest rates on hold at its meeting on Thursday as the board awaits clarity on the U.S. Treasury's report on foreign currency practices due Friday and other external risks.

Investors will focus on the expected update of South Korea's official growth forecasts, which may be revised up from the current 2.5 percent for this year to reflect an upswing in exports.

All 21 economists surveyed by Reuters predicted the Bank of Korea (BOK) will leave its key policy rate at a record-low 1.25 percent, on hold since a 25 basis point cut was implemented in June 2016.

Six of them foresaw a rate hike sometime next year as the bank's next move, while two others said the next move would be a rate cut.

South Korean exports in March posted a fifth straight month of gains while inflation jumped to near five-year high, signalling a rebound in both foreign and domestic demand.

Even with continued improvement in exports, changes in the central bank's policy rate were unlikely before the South Korean presidential election set for May and the U.S. Treasury's report on currencies due Friday, survey respondents said.

"Although exports are posting double-digit growth and inflation is above 2 percent, (the BOK) will maintain its neutral monetary policy stance as uncertainties related to domestic demand are still high," said Yoon Yeo-sam, a fixed-income analyst for Mirae Asset Daewoo Securities in Seoul.

"Policy options are limited anyway as (the board) will want to check the U.S. Treasury's currency report that is driving economic anxiety, and debt rescheduling issues at Daewoo Shipbuilding," Yoon said.

Yoon was referring to a struggling South Korean shipbuilder that could miss making imminent debt payments even though state support has already been promised under certain conditions.

China and South Korea are among a number of Asian countries nervously watching to see if the U.S. Treasury would formally declare them 'currency manipulators' in its report due April 14, which is Good Friday in the Christian calendar but not a U.S. Federal holiday.

Any of the United States's major trading partners placed under 'enhanced analysis' could be subject to stronger surveillance by the International Monetary Fund unless they take 'remedial' action.

China's sanctions against Seoul's deployment of a powerful missile defence system and geopolitical tensions related to North Korea are other risks the central bank must consider alongside the record household debt that is undermining consumption - as the BOK highlighted in a report to parliament this month. (Reporting by Cynthia Kim and Christine Kim, Aditional reporting by Dahee Kim, Jeongeun Lee, Heekyong Yang and Suyeong Lee; Editing by Eric Meijer)

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