|Bank of Korea Governor Lee Yu-yeol speaks during the central bank's 69th anniversary event at the Booyoung Taepyeong Building in Seoul, Wednesday. Yonhap|
By Jhoo Dong-chan
Bank of Korea (BOK) Governor Lee Ju-yeol hinted at a possible key rate cut during his remarks at a central bank event Wednesday, citing the U.S.-China trade dispute and sluggish chip market.
Lee has been adamant over the past several months about keeping the nation's policy rate unchanged at the current 1.75 percent, claiming the global economy will recover while the inflation rate will also climb above 1 percent in the second half of the year.
However, he showed a change in his stance at the BOK's 69th anniversary event as the economy displays no signs of recovery while trade talks between the United States and China have yet to see much progress.
"The BOK will take necessary measures to comply with changes in the economic situation," he said during his remarks.
"The renewed U.S.-China trade dispute is discouraging world trade. Uncertainties in the global economy are mounting. Korea's economy depends heavily on the exports of certain industries, and a series of recent developments could impact Seoul and countries like it even further."
Lee's remarks were in line with senior presidential secretary for economic affairs Yoon Jong-won's recent comments.
"The downtrend in Korea's economy could drag out further than anticipated because of growing uncertainties in the global economy," Yoon said during a press meeting June 9.
His dovish comments came two weeks after the central bank kept the benchmark interest rate frozen at 1.75 percent. The key interest rate has remained untouched since November when the board raised the benchmark rate by 25 basis points.
Lee indicated that the future course of the BOK's monetary policy will depend on two key factors: the U.S.-China trade feud and a chip market recovery.
"The U.S.-China trade confrontation, and when and by how much conditions in the semiconductor market will improve, are the key factors that may determine the course of the economy this year," he said.
"These two external factors appear to be heading for much worse outcomes than expected."
Daishin Securities researcher Kong Dong-rak said the central bank is likely to lower the rate in the third quarter of the year.
"The government and central bank heads have talked in unison about the necessity of growing uncertainties and possible measures. This will eventually lead to a rate cut," he said.
"The U.S. Federal Reserve has also turned dovish, signaling a possible rate cut. I used to think Korea's rate cut would take place in the fourth quarter of the year, but now believe the central bank will lower the rate earlier than expected."
Kyobo Securities analyst Lim Dong-min agreed.
"Discussions over expansionary monetary policy are a global trend now," he said.
"Korea's economic slowdown is an inevitable byproduct of the low birthrate and growing savings rate. Under the circumstances, the central bank and government do not have many options other than to carry out quantitative monetary policy."
The central bank is scheduled to hold its next rate-setting meeting in mid-July.