August 29, 2018 / 2:49 AM / 23 days ago

POLL-S.Korea base rate seen on hold in August, pressured by poor economic data

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

* 18 of 19 economists polled expect BOK to keep the rate unchanged

* 11 of 19 respondents see hike this year, vs 12 of 16 in July poll

* Weak job data, tariff tensions to hamper rate hike: economists

By Hayoung Choi

SEOUL, Aug 29 (Reuters) - South Korea’s central bank is expected to keep its benchmark interest rate steady on Friday as the job market remained weak and inflation was stubbornly shy of the central bank’s target, analysts polled by Reuters said.

All but one of the 19 economists in the poll forecast that the Bank of Korea will keep rates on hold at 1.5 percent.

A slim majority of 11 respondents saw a rate hike before the end of 2018, once policymakers have had more time to observe recovery in the domestic job market.

The same survey conducted in July showed 12 of 16 economists expected a hike within this year.

With policy rates widely seen unchanged on Friday, the focus will be on Bank of Korea (BOK) Governor Lee Ju-yeol’s remarks on the economy, and the number of dissenters on the seven-member board, analysts said.

“The rate will remain steady this time given Turkish risk and the domestic job crisis but may be raised to 1.75 in the next quarter or next year,” said Cho Yong-gu, an economist at Shinyoung Securities.

Following July job data released on Aug. 17, which was the weakest in 8-1/2 years, the yield on the 3-year treasury bond plunged, hovering below 2 percent.

South Korea’s disposable household income fell 0.1 percent in annual terms, prompting a chief presidential policy adviser to say the government would strengthen its stimulative policies.

Headline inflation has stayed below the BOK’s target of 2 percent since October 2017.

“Uncertainty on trade policy contributes to the ‘on-hold’ decision,” said Angela Hsieh, an economist at Barclays.

However, looming rate hikes at the U.S. Federal Reserve in September and December could spur a move by South Korea’s central bank in the next quarter, analysts said.

“If the central bank keeps the rate on hold, the gap with the U.S. will expand to 1 percent, which will add to the burden on domestic financial markets,” Kim Youn-bo, an analyst at Cape Investment & Securities, said.

Twelve of 19 poll respondents expected Lee Il-houng, the sole dissenter at the July monetary meeting, to cast a dissenting vote again, based on BOK minutes from the July meeting where Lee and two other board members called for a near-term rate hike.

BOK Governor Lee Ju-yeol revealed his hawkish stance in his remarks to South Korea’s parliament on July 27. (Reporting by Hayoung Choi and Cynthia Kim Additional reporting by Joori Roh and Jeongmin Kim Editing by Darren Schuettler)

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