Korea’s policy rate is expected to revisit the historic low of 1.25 percent as experts generally see a cut at Wednesday’s rate meeting, survey showed.

In a poll by Maeil Business Newspaper, eight out of 10 economic experts predicted that Korea`s central bank will cut the policy rate from 1.50 percent to 1.25 percent, all-time low kept from June 2016 to November 2017. The other two expected inaction.

Deflationary concerns were cited as the biggest reason.

“There are concerns over mounting household debts, but that is not an imminent risk,” said Kim Soyoung, professor of economics at Seoul National University. “The (central) bank is expected to reduce the rate (in a preemptive move) against deflationary risks."

Shin Min-young, a senior economist at the LG Research Institute, also expected the central bank to lower the rate this time after it kept the rate unchanged in August, saying that the country faces a "grave situation from increasing deflation concerns.”

Korea’s consumer price index (CPI) in September was 105.2, down 0.4 percent from a year ago. It is the country’s first negative inflation, falling deeper into the negative after testing the sub-zero territory of minus 0.038 percent in August. The latest low inflation figures have stoked concerns about deflation, but the government has been arguing it is too early to talk about deflation risks.

The central bank governor and monetary policy committee members have already signaled a cut in rates to prevent deflation.

Two out of the seven-member monetary committee cast a dissenting vote at the August policy meeting, raising the likelihood of a rate cut on Friday. Lee Ju-yeol, governor of BOK also agreed on the need for more “aggressive” fiscal and monetary actions should concerns for deflation increase in the recent parliamentary inspection session a week ago.

“Signs are not imminent for deflation at the moment. But taking accommodative actions will help prevent deflation,” Lee told lawmakers of the finance committee. “We have sent the financial market policy signal that the focus will be on supporting economic recovery.”

“Analysts’ consensus on a rate cut is clear,” said Kang Hyunju, a researcher at the Korea Capital Market Institute. “The market is more focused on what Governor Lee would say about the county’s economic growth outlook for the third quarter ended September.”

The three-year government bond yield finished Monday at 1.28 percent, 0.22 percentage point lower than the policy rate of 1.50 percent, indicating that the market bets on a rate cut in the rate-setting meeting on Wednesday.

Some experts even forecast the central bank would venture below the record low.

Park Jeong-woo, an analyst at Korea Investment & Securities, saw at least two more rates, which means the policy rate could fall below 1.0 percent.

Still many also raise effectiveness of further cut in aiding the economy.

It would be hard to support the economy with just a cut by a quarter percentage point. Increased fiscal spending could be more effective,” said Lee Seung-suk, an analyst at Korea Investment & Securities.

By Song Min-geun and Lee Ha-yeon

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]