S.Korea's c.bank trims growth outlook as rate cut bets rise
* Base rate unchanged at 1.75 pct (Reuters poll 1.75 pct)
* BOK slightly downgrades 2019 growth outlook
* S.Korea's June futures on 3-year KTB up on dovish
(Recasts after Governor Lee's news conference)
By Cynthia Kim and Joori Roh
SEOUL, April 18 (Reuters) - South Korea's central bank cut
its 2019 growth forecast further to a seven-year low while
keeping its policy rate unchanged on Thursday, bolstering
chances it may soon cut rates amid sagging exports and muted
Governor Lee Ju-yeol estimated economic growth in 2019 will
come in at 2.5 percent, down from 2.6 percent projected in
January and the lowest since 2012. Inflation for the year was
also revised down to 1.1 percent from 1.4 percent earlier.
The most notable change in the central bank's monetary
policy statement was its omission of references to a possible
need for policy tightening. Traders felt it was a dovish turn
from a tightening cycle that began in late 2017, a view that
boosted June futures on three-year treasury bonds.
"The BOK officially put an end to its tightening cycle by
removing that reference," Oh Chang-sob, a fixed-income analyst
at Korea Investment & Securities said, referring to the absence
of the phrase '(the BOK) will judge whether to adjust the degree
of monetary policy accommodation further' during its tightening
"The sizable downgrading of the inflation outlook also
boosted market expectations about a possible interest rate cut,"
June futures on three-year treasury bonds rose after the
governor's news conference, up 0.13 points at 109.50 around
All but one of 17 economists surveyed by Reuters expected
the central bank to hold the seven-day repurchase rate
, while a slim majority of nine forecast a rate cut
between now and 2021.
RATE CUT BETS
Expectations of a rate cut have gathered momentum in the
past month as the U.S. Federal Reserve last month signalled an
end to its tightening cycle.
Weaker growth amid sluggish exports and a stagnant property
market have allowed the BOK to contemplate stimulus again, which
would mark a U-turn from its tightening cycle, economists say.
In spite of rising economic uncertainties, governor Lee has
repeatedly emphasised that it is too early to discuss interest
rate cuts, when asked if policies should be loosened to boost
"There is no change to our earlier stance that it's not time
to discuss policy easing," Lee told reporters.
"Although we revised down this year's growth forecasts, (the
economy) will still expand at a pace close to its potential
growth rate due to many factors."
Rising household debt remains an issue for the central bank,
as previous interest rate cuts have been blamed for fuelling the
housing market boom.
The nation's three-year bond yields declined to as low as
1.730 percent on Thursday as the BOK released its policy
statement, falling below the policy rate of 1.75 percent again
and staying close to levels at which it has in the past been
prompted to cut rates.
It fell as low as 1.675 percent in the last week of March as
traders raised their bets the BOK was poised to cut interest
rates for the first time in three years.
(Editing by Jacqueline Wong)
First Published: 2019-04-18 02:50:56
Updated 2019-04-18 06:47:38
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