March 21, 2018 / 8:39 AM / a month ago

South Korea central bank chief unsure if wide gap with U.S. rates would be sustainable

SEOUL (Reuters) - South Korea’s central bank chief said on Wednesday that the bank is unsure whether a wide gap between U.S. and South Korean base rates would be sustainable, hours ahead of an expected rate hike by the Federal Reserve.

FILE PHOTO: Bank of Korea Governor Lee Ju-yeol speaks during a news conference in Seoul, South Korea, November 30, 2017. REUTERS/Kim Hong-Ji

“If the United States is to raise its interest rates three to four times within this year, the gap would be as big as one percentage point, which is quite considerable,” said Lee Ju-yeol at a confirmation hearing.

“(The bank) must consider whether such a gap would be sustainable for the long-term,” Lee added.

The Fed is expected to raise interest rates later in the day at its first policy meeting under Chairman Jerome Powell and is likely to signal more hikes are coming.

A quarter percentage point hike would bring the Fed’s key rate to a range of 1.50 to 1.75 percent.

The Bank of Korea held its base rate unchanged at 1.50 percent in its February policy meeting, after raising it for the first time in more than six years back in November.

Economists at Nomura believe the BOK is also keen to normalize policy but will proceed at a more gradual pace than the Fed. They see the next BOK hike in May, with another in November and two more in 2019.

In Wednesday’s hearing, Lee earlier said that the probability of the country being labeled by the United States as a currency manipulator seemed low and that active discussions over currencies were ongoing.

(This story has been refiled to add dropped words in headline)

Reporting by Dahee Kim, Additional reporting by Christine Kim; Editing by Eric Meijer

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