SEOUL, Jan 11 (Reuters) - South Korea's central bank held interest rates steady for a third consecutive month on Friday, as expected, but sharply lowered this year's economic growth forecast and kept the door open for a rate cut soon.
Bank of Korea Governor Kim Choong-soo indicated during his news conference that at least one of the seven board members voted to cut the base rate against the majority vote for no change at 2.75 percent.
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- Reuters survey: 17 out of 22 analysts forecast the Bank of Korea would hold the policy rate steady at 2.75 percent, whereas the remaining five saw a cut.
LEE JUNG-JOON, FIXED-INCOME ANALYST, HMC INVESTMENT & SECURITIES
'I think the rate will be frozen throughout this year. Although it is true the growth has been lowered, last year's third and fourth quarter was the bottom. So the recovery trend won't be turned around.
'I would say the deflationary gap will remain but become narrower.'
NA JUNG-HYEOK, ECONOMIST, IBK SECURITIES
'The South Korean economy is in dire need of a rate cut at the moment as the economy is not in good condition. However, according to Kim's remarks, Kim does not seem to recognise the seriousness and is not ready to cut the rates further.'
RONALD MAN, ECONOMIST, HSBC, HONG KONG
'Korea's economy will be most vulnerable in Q1 because external demand hasn't quite picked up full speed yet. A potential rate cut in the coming months is more of a call on global conditions, rather than the Korean economy. This is because Korea's recovery will likely be export-led and if global conditions fail to pick up meaningfully, then the central bank may need to cut rates again to further support domestic demand.'
- Bond prices trimmed their initial losses after Governor Kim said the central bank lowered its growth forecasts for 2013 and 2014, suggesting that more rate cuts remain in the cards.
- Lead March futures on three-year treasury bonds were down 0.08 points at 106.36 as of 0304 GMT. The won was up 0.4 percent against the dollar at 1,056.4, while Seoul shares were down 0.9 percent at 1989.93.
- South Korea's recent data has been mixed, with November industrial production rising for three straight months but December exports unexpectedly falling from a year ago.
- Asia's fourth-largest economy is widely estimated to have posted mid-2 percent growth last year, but most analysts say the country has passed the trough by the September quarter.
- President-elect Park Geun-hye from the ruling conservative party, who takes office in late February, has pledged to focus policy on creating more jobs in the domestic service industries and increasing welfare support.
- The outgoing government has already announced it would allocate more than 70 percent of its annual budget spending in the first half, similar to last year, to help spur the still slow recovery in the economy.
(Reporting by Christine Kim, Daum Kim, Se Young Lee; Editing by Choonsik Yoo) Keywords: KOREA ECONOMY/RATES
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