South Korea's
central bank kept interest rates steady on Thursday, maintaining its
view that the struggling economy is on track for recovery, but analysts
said growing uncertainties in China could prompt it to cut rates later
in the year.
The
Bank of Korea's monetary policy committee unanimously left the base rate
KROCRT=ECI at a record low of 1.50 percent for a second consecutive
month. It cut the rate by a combined 1 percentage point between August
last year and June this year.
"The economy will recover on the back on expansionary macroeconomic policy and the end of the MERS outbreak, but uncertainties are high in the economy's growth path," Bank of Korea Governor Lee Ju-yeol told a news conference.
China's devaluation of its yuan currency on Tuesday roiled financial markets and added to worries about the state of its cooling economy, South Korea's largest export market.
"Governor
Lee gave no clear signal on the near-term policy direction but I see
the risk for another rate cut slightly increasing of late due to
heightened uncertainties in China," said Young Sun Kwon, economist at
Nomura in Hong Kong.
China is South Korea's largest trading partner, accounting for more than one-fifth of its smaller neighbour's total foreign trade, and the yuan's sharp decline this week had sent the won KRW= falling sharply.
Governor Lee said possible capital outflows were the main risk when the U.S. Federal Reserve begins raising its interest rates likely later this year, but added that South Korea's economy was sound enough to avoid massive outflows.
"I can't say which is more important between exports or capital outflows in terms of what's happening in China. We have to see how the situation settles down -- what effects it will have on our exports and capital flows," Lee told reporters.
Local markets shrugged off the central bank's decision to keep rates on hold, as all the 27 analysts in a Reuters poll had forecast a steady rate. A majority of the analysts said rates would remain unchanged through the end of the year.
South Korea's trade-reliant economy recorded its weakest expansion in six years in the second quarter, growing just 0.3 percent, as exports sputtered and consumers cut back spending in reaction to a deadly outbreak of Middle East Respiratory Syndrome (MERS).
"The economy will recover on the back on expansionary macroeconomic policy and the end of the MERS outbreak, but uncertainties are high in the economy's growth path," Bank of Korea Governor Lee Ju-yeol told a news conference.
China's devaluation of its yuan currency on Tuesday roiled financial markets and added to worries about the state of its cooling economy, South Korea's largest export market.
China is South Korea's largest trading partner, accounting for more than one-fifth of its smaller neighbour's total foreign trade, and the yuan's sharp decline this week had sent the won KRW= falling sharply.
Governor Lee said possible capital outflows were the main risk when the U.S. Federal Reserve begins raising its interest rates likely later this year, but added that South Korea's economy was sound enough to avoid massive outflows.
"I can't say which is more important between exports or capital outflows in terms of what's happening in China. We have to see how the situation settles down -- what effects it will have on our exports and capital flows," Lee told reporters.
Local markets shrugged off the central bank's decision to keep rates on hold, as all the 27 analysts in a Reuters poll had forecast a steady rate. A majority of the analysts said rates would remain unchanged through the end of the year.
South Korea's trade-reliant economy recorded its weakest expansion in six years in the second quarter, growing just 0.3 percent, as exports sputtered and consumers cut back spending in reaction to a deadly outbreak of Middle East Respiratory Syndrome (MERS).
No comments:
Post a Comment