A man gets on a bicycle in front of the Bank of Korea in Seoul. The current account surplus in April stood at US$7.12bil, down 2.2% from a revised US$7.29bil in March, the Bank of Korea (BOK) says - Reuters Photo.
SEOUL: South Korea's central bank is expected to leave interest rates on hold at its meeting on Thursday as an upswing in inflation and exports fails to offset declining consumer sentiment in the face of an influence-peddling scandal involving President Park Geun-hye.
All 20 economists surveyed by Reuters predicted the Bank of Korea (BoK) will leave its key policy rate at a record low 1.25% for an eighth straight month.
Five of them foresaw a rate cut later this year, while four others said the next move will be a hike in 2018.
South Korea's consumer inflation reached its fastest in more than four years in January while exports surged for a third consecutive month, adding to perceptions that business activity is building momentum.
Even so, consumer sentiment for January dropped to the worst level since the 2009 financial crisis as the political upheaval following the impeachment of President Park weighed on domestic demand.
In the last three months of 2016 private consumption expanded just 0.2%, slumping from a 0.5% rise in the September quarter.
"The pace of economic recovery remains very slow currently, due to lingering manufacturing overcapacity and weakness in consumer sentiment," said Ma Tie-ying, an economist at DBS Bank. "We expect the BoK to keep rates at 1.25% for the full year of 2017."
Several of the five economists who saw a rate cut this year said growth will be fragile throughout the year and predicted the government would implement a supplementary budget, with the central bank working in concert by easing interest rates.
Last week special prosecutors arrested Samsung group heir-apparent Jay Y. Lee on bribery charges linked to the influence-peddling scandal that led to President Park' impeachment.
The prosecutors' office said it may probe other conglomerates, which could derail major investment and business decisions at leading exporters.
The Constitutional Court is reviewing Park's impeachment, and a decision on whether to unseat or reinstate her could be announced soon.
Faster-than-expected interest rate hikes by the US Federal Reserve may also narrow the BoK's policy options as Fed hikes could send money flowing out of the country and place a greater debt burden on households.
The eight cuts in interest rates since 2012 to spur domestic demand and investing have prompted a renewed borrowing binge that has sent household debt to a record high.
"The BoK's focus is on maintaining financial stability. A cut isn't likely unless risks related to household debt and the Fed's normalising of interest rates diminishes significantly," said Shin Dong-soo, a fixed-income analyst at Eugene Investment & Securities.- Reuters
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