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S.Korea seen on hold at first policy meeting under new presidency
May 23, 2017 / 6:36 AM / 6 months ago

S.Korea seen on hold at first policy meeting under new presidency

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

* All 19 economists surveyed see base rate kept at record low of 1.25 pct on May 25

By Cynthia Kim

SEOUL, May 23 (Reuters) - South Korea’s central bank is expected to keep its base rate unchanged at 1.25 percent on Thursday, facing soaring household debt and taking a cautious approach in its first policy review since President Moon Jae-in’s inauguration.

The Bank of Korea’s assessment of the economy will be the focus of attention in the first policy meeting for the board’s seven members to express their views since President Moon took office on May 10.

All 19 economists surveyed by Reuters predicted the BOK would leave its key policy rate at a record-low 1.25 percent, which has been on hold since a 25 basis point cut in June 2016.

Nine of them foresaw a rate hike next year as the bank’s next move, while the remainder said the BOK board would not adjust policy rates for some time.

Even with rebounding exports and stronger inflation, incoming finance minister Kim Dong-yeon said he will work with the National Assembly to draft a supplementary budget to tackle soaring youth unemployment.

What Governor Lee Ju-yeol says on the need for economic stimulus might also give a clue to the bank’s next policy move, after the bank upgraded this year’s growth outlook to 2.6 percent from its earlier estimate of 2.5 percent in April.

“An important pledge by the new president during the election campaign was fiscal policy expansion. If implemented, an expansionary fiscal policy would boost both GDP growth and inflation next year, which strengthens the case for the BOK to begin to normalise interest rates,” said Ma Tie-ying, an economist at DBS Bank.

Some respondents, including Stephen Lee at Meritz Securities, maintained that mounting household debt in South Korea and tightening monetary policy in the U.S. would keep the BOK in a tight spot.

“It will be a hold for a while, as household debt growth continues to be sharp when uncertainties related to U.S. policy rates persist,” Lee said.

Of the bank’s seven board members, Senior Deputy Governor Jang Byung-wha’s three-year term ends June 2017, while Governor Lee will finish his term in March 2018.

The central bank is an independent body in terms of policy decisions, although its board is appointed by the president. (Reporting by Cynthia Kim; Additional eporting by Dahee Kim, Suyeong Lee, Yuna Park and Heekyong Yang; Editing by Eric Meijer)

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