(Repeats ahead of the central bank's rate decision on Thursday)
(For a related factbox, double-click)
WHAT: Central bank's interest rate decision
WHEN: Feb. 11, decision at around 0100 GMT
REUTERS FORECASTS:
- Thirteen of 14 economists polled see the central bank holding the benchmark steady at record-low 2.0 percent for a 12th consecutive month, while one expects a 25 basis-point rise.
- Four, including the one who sees a rise this week, predict a rise to 2.25 percent-2.50 percent in March; another four see a rise in the second quarter; and the other six expect a rise in the second half.
- Reuters' previous poll conducted after the BOK's Jan. 8 meeting showed seven out of 10 analysts expected a rate rise in February or March.
By Seo Eun-kyung
SEOUL, Feb 9 (Reuters) - Analysts have pushed back the expected timing for a rise in South Korea's policy interest rate from early 2010 to the second quarter as policymakers wait for more signs the economic recovery is on solid footing.
The Bank of Korea is expected to keep rates at a record low for a 12th consecutive month on Thursday, but hint at a possible rise at time amid concerns that keeping rates too low for too long could fuel inflationary pressures, a Reuters poll shows.
At his consecutive month on Thursday, but hint at a possible rise at monthly news conference on Jan. 8, the central bank's chief left the door open for a rate increase, saying the rate was too low for an economy seen growing about 5 percent this year after averting contraction in 2009.
But the government has publicly opposed an early tightening, reviving its right after a decade to sit in monetary policy meetings and press its case and prompting investors to push their bets on a rate hike deeper into 2010.
Analysts have also pushed back their bets after data showed Asia's fourth-largest economy lost much of its steam in the last quarter of 2009, and amid recent market worries that China's crackdown on credit growth and debt problems in Greece and other European states that could threaten a global recovery.
Here are some possible outcomes from the Bank of Korea's monetary policy committee meeting and subsequent news conference by Governor Lee Seong-tae, and the expected market reaction:
FLAGS RATE HIKE ANY TIME
The central bank will likely reaffirm its intention to raise rates at any time, saying the economy largely remains on a recovery track and that keeping rates at an ultra-low level for an extended period can stoke inflationary pressures.
The bank's governor kept his hawkish rhetoric last month even after a meeting which was attended by a finance ministry representative for the first time in more than a decade. The central bank last week played down concerns about Chinese, U.S. and European affairs.
Data released on Tuesday showed the producer inflation in January hit a 10-month high of 2.8 percent, evidence that consumer inflation could accelerate further after hitting a 9-month high of 3.1 percent in January.
* Probability: high (about 57 percent chance, or 8 out of the 14 economists polled)
* Market reaction: Bond and stock prices will fall and the won will rise, but the scope will be modest as money market rates have priced in at least one rate rise. Bond yields have fallen by almost 10 basis points since the weak fourth-quarter economic growth data was released late last month.
VOWS TO KEEP RATES FOR TIME BEING
The Bank of Korea may keep its year-long pledge to keep easy monetary policy 'for the time being' to help the economy gain a more solid footing and say it is sharing the government's cautious view on the economic outlook.
Its acknowledgement of growing uncertainties in the global business landscape will be taken by investors as signalling that interest rates will be held steady for several more months.
Governor Lee steps down on March 31 at the end of his term, and analysts are sceptical that his successor, widely expected to be a more pro-government figure, would raise interest rates soon after taking office in April.
* Probability: medium (about 43 percent chance, or 6 out of the 14 economists polled).
* Market reaction: Bond and stock prices will rise and the won will fall, although the scope of gains could depend on the exact wording and tone of statements from the governor and the central bank.
RATES RAISED, MORE INCREASES AHEAD
The central bank may raise the rate by 25 basis points for the first time since August 2008 and signal more raises in the pipeline, voicing worries over a build-up in inflation pressures driven by much faster economic growth than expected.
This will make the Bank of Korea among the first Group of 20 central banks to start raising benchmark interest rates on building signs of inflation as a result of the economic recovery after the steepest global cuts in credit costs in many decades.
The bank may flag further increases by dropping its year-long vow to keep easing stance for the time being and instead saying monetary policy will depend on inflation trends.
It is not expected to use steps to directly drain money from the banking system, such as recent moves taken by China and India, as it did not cut commercial banks' reserve requirements during the global crisis and as the country's more diversified financial system has weakened the effectiveness of such measures.
* Possibility: low (about 7 percent chance, or 1 out of 14 economists polled).
* Market reaction: Bond and stock prices will tumble and the won will jump as investors rush to price in a much more aggressive tightening cycle than had been expected.
(Editing by Yoo Choonsik & Kim Coghill) ((eunkyung.seo@thomsonreuters.com; +82 2 3704 5648; Reuters Messaging;eunkyung.seo.reuters.com@reuters.net)) Keywords: KOREA ECONOMY/RATES (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
(For a related factbox, double-click)
WHAT: Central bank's interest rate decision
WHEN: Feb. 11, decision at around 0100 GMT
REUTERS FORECASTS:
- Thirteen of 14 economists polled see the central bank holding the benchmark steady at record-low 2.0 percent for a 12th consecutive month, while one expects a 25 basis-point rise.
- Four, including the one who sees a rise this week, predict a rise to 2.25 percent-2.50 percent in March; another four see a rise in the second quarter; and the other six expect a rise in the second half.
- Reuters' previous poll conducted after the BOK's Jan. 8 meeting showed seven out of 10 analysts expected a rate rise in February or March.
By Seo Eun-kyung
SEOUL, Feb 9 (Reuters) - Analysts have pushed back the expected timing for a rise in South Korea's policy interest rate from early 2010 to the second quarter as policymakers wait for more signs the economic recovery is on solid footing.
The Bank of Korea is expected to keep rates at a record low for a 12th consecutive month on Thursday, but hint at a possible rise at time amid concerns that keeping rates too low for too long could fuel inflationary pressures, a Reuters poll shows.
At his consecutive month on Thursday, but hint at a possible rise at monthly news conference on Jan. 8, the central bank's chief left the door open for a rate increase, saying the rate was too low for an economy seen growing about 5 percent this year after averting contraction in 2009.
But the government has publicly opposed an early tightening, reviving its right after a decade to sit in monetary policy meetings and press its case and prompting investors to push their bets on a rate hike deeper into 2010.
Analysts have also pushed back their bets after data showed Asia's fourth-largest economy lost much of its steam in the last quarter of 2009, and amid recent market worries that China's crackdown on credit growth and debt problems in Greece and other European states that could threaten a global recovery.
Here are some possible outcomes from the Bank of Korea's monetary policy committee meeting and subsequent news conference by Governor Lee Seong-tae, and the expected market reaction:
FLAGS RATE HIKE ANY TIME
The central bank will likely reaffirm its intention to raise rates at any time, saying the economy largely remains on a recovery track and that keeping rates at an ultra-low level for an extended period can stoke inflationary pressures.
The bank's governor kept his hawkish rhetoric last month even after a meeting which was attended by a finance ministry representative for the first time in more than a decade. The central bank last week played down concerns about Chinese, U.S. and European affairs.
Data released on Tuesday showed the producer inflation in January hit a 10-month high of 2.8 percent, evidence that consumer inflation could accelerate further after hitting a 9-month high of 3.1 percent in January.
* Probability: high (about 57 percent chance, or 8 out of the 14 economists polled)
* Market reaction: Bond and stock prices will fall and the won will rise, but the scope will be modest as money market rates have priced in at least one rate rise. Bond yields have fallen by almost 10 basis points since the weak fourth-quarter economic growth data was released late last month.
VOWS TO KEEP RATES FOR TIME BEING
The Bank of Korea may keep its year-long pledge to keep easy monetary policy 'for the time being' to help the economy gain a more solid footing and say it is sharing the government's cautious view on the economic outlook.
Its acknowledgement of growing uncertainties in the global business landscape will be taken by investors as signalling that interest rates will be held steady for several more months.
Governor Lee steps down on March 31 at the end of his term, and analysts are sceptical that his successor, widely expected to be a more pro-government figure, would raise interest rates soon after taking office in April.
* Probability: medium (about 43 percent chance, or 6 out of the 14 economists polled).
* Market reaction: Bond and stock prices will rise and the won will fall, although the scope of gains could depend on the exact wording and tone of statements from the governor and the central bank.
RATES RAISED, MORE INCREASES AHEAD
The central bank may raise the rate by 25 basis points for the first time since August 2008 and signal more raises in the pipeline, voicing worries over a build-up in inflation pressures driven by much faster economic growth than expected.
This will make the Bank of Korea among the first Group of 20 central banks to start raising benchmark interest rates on building signs of inflation as a result of the economic recovery after the steepest global cuts in credit costs in many decades.
The bank may flag further increases by dropping its year-long vow to keep easing stance for the time being and instead saying monetary policy will depend on inflation trends.
It is not expected to use steps to directly drain money from the banking system, such as recent moves taken by China and India, as it did not cut commercial banks' reserve requirements during the global crisis and as the country's more diversified financial system has weakened the effectiveness of such measures.
* Possibility: low (about 7 percent chance, or 1 out of 14 economists polled).
* Market reaction: Bond and stock prices will tumble and the won will jump as investors rush to price in a much more aggressive tightening cycle than had been expected.
(Editing by Yoo Choonsik & Kim Coghill) ((eunkyung.seo@thomsonreuters.com; +82 2 3704 5648; Reuters Messaging;eunkyung.seo.reuters.com@reuters.net)) Keywords: KOREA ECONOMY/RATES (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.