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BOK to freeze key rate again in August: analysts

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(Globalpost/GlobalPost)

SEOUL, Aug. 4 (Yonhap) -- South Korea's central bank is widely expected to keep its stance and freeze the key interest rate for August as the country is anticipated to post a gradual economic recovery down the road, analysts said Sunday.

The Bank of Korea (BOK) froze the key interest rate for the second straight month in July amid uncertainty over the Federal Reserve's possible stimulus reduction and signs of economic recovery at home. The central bank left the benchmark seven-day repo rate unchanged at 2.5 percent last month, as widely expected.

The outlook came as the South Korean economy grew at the fastest pace in more than two years in the second quarter this year on increased fiscal spending, underpinning the view that the economy is on the recovery track.

South Korea's gross domestic product (GDP), the broadest measure of economic performance, grew 1.1 percent in the second quarter from three months earlier, quickening from a 0.8 percent on-quarter rise in the first quarter.

It marked the fastest quarterly growth since the 1.3 percent growth in the first quarter of 2011. From a year earlier, the GDP grew 2.3 percent in the second quarter, compared to the 1.5 percent on-year gain in the first quarter.

"As South Korea is expected to maintain its economic growth over the second half of 2013, the central bank is unlikely to seek a rate cut in August," said Shin Min-young, a researcher at the LG Economic Research Institute.

Local analysts said the central bank, however, may consider raising its key rate if the United States cuts back on its quantitative easing moves, which is feared to spark an exodus of foreign capital in the local market.

Major global investment banks, meanwhile, also anticipate the BOK will keep its key interest rate for the time being, with Barclays, Citi and HSBC projecting a rate freeze until the second half of 2014.

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http://www.globalpost.com/dispatch/news/yonhap-news-agency/130804/bok-freeze-key-rate-again-august-analysts