November 28, 2018 / 3:14 AM / 6 months ago

POLL-Bank of Korea seen raising rates this week, staying put next year

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

* 15 of 16 economists polled see rate hike on Friday

* First hike in a year, aimed at calming property boom

* 10 of 14 expect no further hike through 2019

By Hayoung Choi and Choonsik Yoo

SEOUL, Nov 28 (Reuters) - South Korea’s central bank appears certain to raise the key interest rate this week for the first time in a year to calm the property market, a Reuters poll found, but would then stay on hold through next year.

All but one of the 16 economists in the survey predicted the Bank of Korea would raise its base rate by 25 basis points to 1.75 percent at its regular board meeting on Friday.

That would be the first hike since November last year and would take the rate to its highest since early June 2015.

Still, 10 of the 14 economists who projected the central bank’s subsequent move expected it to keep the rate unchanged throughout 2019 as inflation remains low and economic growth is slowing.

“The chance for additional hikes is slim, given the persisting downside risks on the economy as well as declining housing prices and the slowing pace of household loan growth,” said Shin Dong-soo, economist at Eugene Investment & Securities.

The Bank of Korea, which has a financial stability mandate along with its prime mission of keeping inflation stable, has flagged policy tightening to curb domestic debt growth amid a rampant property boom in some key areas.

The government is worried a further sharp rise in consumer borrowing, already standing at one of the heaviest levels among major economies, could send Asia’s fourth-largest economy into turmoil if conditions deteriorated.

The government wants to keep household debt roughly level with income growth. Last year households saw their outstanding credit - borrowing and credit card spending - grow by 8.1 percent versus a 4.5 percent gain in disposable income.

The widening interest rate gap between South Korea and the United States also raises concerns over possible capital outflow. South Korea’s 10-year treasury bonds yield around 2.15 percent versus 3.06 percent on U.S. 10-year notes.

Nonetheless, the Bank of Korea is most likely to stand pat at least through next year as economic growth is on a downward path and while inflation remains subdued, economists said.

The central bank forecasts consumer inflation will tick up to 1.7 percent in 2019 from the 1.6 percent seen for this year, both below the central bank’s target of keeping inflation around 2.0 percent. (Additional reporting by Jeongmin Kim, Joori Roh and Yuna Park; Editing by Eric Meijer)

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