A majority of experts believe South Korea's central bank will raise its key interest rate for June in a preemptive attempt to curb inflation, though a similar number expect a freeze, a poll showed Monday.
Nine experts out of 17 surveyed by Yonhap Infomax, the financial news arm of Yonhap News Agency, predicted the Bank of Korea (BOK) would jack up the call rate, while the remaining eight forecast a rate freeze.
The BOK's seven policymakers are scheduled to decide on the June target for the call rate during their monthly rate session Thursday. The call rate refers to the interest charged on overnight inter-bank loans.
"The economy is still on a resilient path toward a recovery as exports grew more than 20 percent last month, while oil prices and the won's value against the U.S. dollar slightly stabilized," said Shin Yong-sang, a researcher at the Korea Institute of Finance.
"However, the bank will need to curb inflation that is being stoked from low interest rates and rising household loans," Shin said.
South Korea's consumer prices increased at a faster-than-expected pace in May due to a rise in prices of industrial goods. Consumer prices increased 0.2 percent in May from the previous month, up from a 0.1 percent monthly advance in April, according to the nation's statistics office earlier this month.
The central bank predicts inflationary pressure to heighten in the second half as a full economic recovery gets underway.
In 2006, Asia's fourth-largest economy is expected to grow 5 percent, up from a 4 percent advance last year, on the back of reviving consumer spending and resilient exports. In recent months, however, rising oil prices and the won's ascent against the greenback have emerged as possible stumbling blocks for the recovery momentum.
Experts expecting a rate freeze said the two negative factors would force the central bank to leave the benchmark interest rate unchanged for this month.
"In April, the leading economic indicator fell for a third month and the soaring oil prices and the won's rise against the dollar are raising jitters over South Korea's economic recovery in the second half," said Lim Ro-jung, an analyst at Hanwha Securities. "Amid such jitters, the bank will freeze the rate in June."
Another analyst echoed the view.
"The inflationary pressure will not encourage the bank to raise the rate as core inflation remains below the bank's target for the inflation this year," said Oh Suk-tae, an economist at Citibank Korea. "Low manufacturing output in April and weak economic indicators will prevent the central bank from raising the rate." Seoul, June 5 (Yonhap News)
S. Korea's central bank expected to raise key rate for June |
