SEOUL, April 11 (Reuters) - South Korea's central bank cut on Thursday its economic growth forecast for this year but its governor said there was no change in its view that both economic growth and inflation would be gathering pace later this year as it unexpectedly held rates.
Bank of Korea Governor Kim Choong-soo told reporters economic growth this year would reach 2.6 percent, compared to 2.8 percent seen in January, but said the central bank was applying a longer-term view than those outside the bank.
Earlier on Thursday, it surprised markets by holding interest rates steady, resisting political pressure for a cut and opting to further assess the effects from the government's stimulus steps and the impact of tensions with North Korea.
- Full story
- Bank of Korea statement
- HIGHLIGHTS from news conference
- Reuters survey Of 22 analysts: 18 saw a cut whereas the remaining four predicted no change.
KIM SANG-HOON, FIXED-INCOME ANALYST, HANA DAETOO SECURITIES
'I think the decision today lowered the possibility for a rate cut in the future. It looks like expanding the total ceiling for SME lending and (planned) extra supplementary budget are sufficient for now.'
KONG DONG-RAK, FIXED-INCOME ANALYST, HANWHA SECURITIES
'What was most notable about Kim's news conference today was that he clarified the central bank's stance on the current economic situation. He explained the reasoning behind the central bank's decision to lower the growth forecast to 2.6 percent and also added he is not concerned about deflation.'
'We are still reviewing our house view but for now it seems that the Bank of Korea has denied the government's request that it coordinate with their policies for economic growth.'
LEE JUNG-JOON, FIXED-INCOME ANALYST, HMC INVESTMENT & SECURITIES
'I think that the Bank of Korea sees the economy more positively than the government. But I don't think today's rate decision was a gesture to disagree with the government's pressure to slash rates'
'Whether this month's rate decision was unanimous is key to forecasting what the next rate decision will be. However, there is still a possibility for a rate cut later this year'
PARK SANG-HYUN, CHIEF ECONOMIST, HI INVESTMENT & SECURITIES
'Today's decision to hold rates shows that the Bank of Korea is asserting its independence as there was considerable political pressure to cut rates. However, we see rates being cut next month, in line with broader stimulus measures such as the extra budget.'
YUM SANG-HOON, ECONOMIST, SK SECURITIES
'I think the Bank of Korea is convinced that interest rates are low enough. The central bank believes that rates are fully accommodative and as long as Governor Kim Choong-soo is in place there will be no more cuts.'
'The Bank of Korea seems to believe that government measures will be enough to support the economy, but I do not. Time has shown that government spending has increasingly little effect on the economy.'
'The central bank likely held rates due to household debt and inflation but as I said, the bank has shown it will no longer cut rates under Kim.'
KIM SUYANG, FIXED-INCOME ANALYST, KB INVESTMENT & SECURITIES
'Today's decision is a sign that the local economy is not that bad and I think BOK took the (planned) supplementary budget into account. BOK has kept talking about the negative impact that lowering of the rate will have on the household debt.
'I expect the rate will remain steady for the rest of the year. There are not many important or serious factors to push down the rate. Geopolitical risks are not threatening much.'
RONALD MAN, ECONOMIST, HSBC, HONG KONG
'The economics have prevailed over the politics. Improvement in recent data has likely deemed sufficiently strong by the central bank. Eyes will now be on the supplementary budget, which is expected to be announced next week.'
- The won returned to trading levels before the rate decision, up 0.6 percent on the day against the dollar 0302 GMT, while Seoul shares were down 0.2 percent after Governor Kim Choong-soo's comments.
- June futures on three-year treasury bonds extended their fall, down 0.36 points at 106.75.
- Policymakers and companies are worried that South Korean exporters would be hit hard by the yen's steep fall globally on Japan's massive drive to print money unlimitedly to end the country's severe deflation.
- Policymakers are also keeping a close eye on the impact from increased tensions with North Korea as weeks of bellicose rhetoric from Pyongyang has rattled investor confidence in South Korean financial markets.
(Reporting by Se Young Lee, Choonsik Yoo, Christine Kim and Narae Kim, Narae Kim, Daum Kim, Somang Yang; Editing by David Chance and Eric Meijer) Keywords: KOREA ECONOMY/RATES
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