South Korea's central bank is expected to freeze its policy rate at the current 1.5 percent at its upcoming monetary meeting due to low inflation pressure and the sluggish job market, a market watcher said Sunday.
Scheduled to take place Thursday, the seven-member monetary policy panel under the Bank of Korea (BOK) will decide whether to keep or adjust the key rate. The May meeting is the fourth round out of eight sessions set for this year.
The BOK has maintained the present level in the previous three sessions since it raised the rate by a quarter percentage point from an all-time low of 1.25 percent in its final monetary meeting in November last year.
"The Bank of Korea will likely keep the policy rate unchanged at 1.5 percent in May," Moody's Analytics said in its weekly report. "With inflation still below the central bank's 2 percent target and the labor market showing signs of weakness, we expect monetary policy to stay on hold."
South Korea's consumer price index rose 1.6 percent in April, accelerating from a 1.3 percent gain in March and marking the fastest clip in six months.
Nevertheless, many anticipated that the April figure is still too low to push the BOK to raise the key rate as the strengthening local currency against the U.S. dollar is helping the inflation pressure remain low at the same time, the Moody's report said.
Also, the country's job market is weak as a sharp hike in the minimum wage has weighed heavily on employment growth since the beginning of the year.
"Two factors keeping a lid on price pressure are the elevated won and the softening labor market," Moody's said.
Recently, BOK Gov. Lee Ju-yeol said the South Korean economy faces strong headwinds in the coming months, saying, "It has become hard to be optimistic."
"Uncertainties are still high as major economies are going through monetary normalization, and (there are) trade tensions between the United States and China," he said Thursday. "On the domestic side, employment remains sluggish."
Many market watchers, meanwhile, expect the BOK to raise the key rate in the second half of this year in a bid to keep up with the U.S. Fed's rate hike schedule for 2018. Following the Fed's latest increase in March, South Korea's base rate stands at 1.5 percent, compared with the U.S. range of 1.5-1.75. SEO (Yonhap)
Kim Jung-mi firstname.lastname@example.org
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