Bank of Korea seen keeping rates on hold at May meeting

By Dahee Kim

SEOUL (Reuters) – South Korea’s central bank is seen likely to keep interest rates steady at its May policy meeting, a Reuters poll of economists found on Wednesday, but they noted that the voting might not be unanimous – signaling a hike in July.

All 13 economists surveyed by Reuters saw the Bank of Korea (BOK) keeping its policy interest rate steady at 1.50 percent at the meeting on Thursday. “Onshore economic uncertainties like high unemployment have heightened and the bank should still monitor whether inflation could start to pick up, which means it will have to hold rates for May,” said Lee Sur-bee, an economist at Samsung (KS:) Securities.

Lee noted the minutes of the April meeting showed some members worried about continuing to hold rates at the current level, given policy tightening by other major central banks.

Nine of the 10 economists who expected a rate rise in July believed a July hike would be the only increase this year. No board meeting is scheduled for June.

“It may sound paradoxical but the BOK will have to increase rates in July as the South Korean economy would only become worse going forward, making it even harder to raise rates,” said Kang Seung-won, an economist with NH Investment & Securities.

Yoon Yeo-sam, a fixed income analyst at Meritz Securities, also expected only one rate hike to be possible this year, noting that weak construction investment and high unemployment continue to weigh on the economy.

South Korea’s parliament passed a 3.83 trillion won ($3.55 billion) supplementary budget bill on Sunday, with more than 70 percent of the additional budget to be spent in coming months to combat high youth unemployment.

“The government’s proposed extra budget bill has recently been approved, but it will need time to actually have any influence. An additional rate hike after July is unlikely, even in the first half of next year,” said Meritz’s Yoon.

Lim Ji-won, previously an economist at JP Morgan, will join the seven-member board at the May meeting and is not considered to be hawkish. She too has forecast a rate hike in July.

“She would definitely not give an opinion that goes against the BOK’s current consensus as it’s her first meeting as a board member,” said Lee Mi-seon, an economist at Hana Financial Group.

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