|The Bank of Korea headquarters in Seoul / Yonhap|
By Jhoo Dong-chan
The Bank of Korea (BOK) is under growing pressure to lower its key interest rate after U.S. Federal Reserve Chairman Jerome Powell strongly hinted at a rate cut later this month, Thursday.
Experts said the BOK is likely to lower the benchmark rate in August at the latest if the Fed cuts its policy rate this month. The Korean central bank is scheduled to have rate-setting monetary policy committee meetings, July 18 and Aug. 30.
During his testimony at the U.S. House Financial Services Committee hearing, Powell confirmed his dovish stance once again despite America's higher-than-anticipated employment index in June.
"It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook," he said.
Powell's remarks indicate the Fed is highly likely to lower its rate by 25 basis points at the Federal Open Market Committee meeting slated for July 30 and 31.
British global investment bank giant Barclays even claimed the Fed could cut rates by up to 75 basis points after September if current global economic uncertainties continue.
"The U.S. economy is strong at the moment. It is highly unlikely the uptrend suddenly turns sluggish in the near future," a Korea Center for International Finance official said.
"The Fed won't cut 75 basis points this year, but will remain dovish even if it cuts 25 basis points this month."
Domestic analysts said it is certain the BOK will follow the downward trend soon.
"It is either this month or next month," said Lee Chang-mok, managing director of the Research Division at NH Investment & Securities.
"The central bank won't have a lot of options now if the Fed lowers its rate this month. The BOK will lower the key rate this month, or next at the latest. This will help raise Seoul stocks a certain degree, but firms' Q2 earnings were very disappointing. Any economic stimulus effect could be limited."
Eugene Investment researcher Shin Dong-soo said the BOK is expected to cut the rate next month considering growing pressure from an inverted yield curve between the U.S. and Korea.
"Two of the BOK's Monetary Policy Committee members have continuously mentioned the necessity of a rate cut. Korea's growth rate has also been underrated by a number of global rating agencies," Shin said.
"Considering the above factors, the central bank is likely to lower the rate next month."
In April, the BOK set the nation's economic growth rate at 2.5 percent, down 0.1 percentage points from its previous outlook.
Global ratings agency Standard & Poor's also cut its outlook on Korea's growth rate by 0.4 percentage points to 2 percent, adding the Korean economy is continuing its downturn rather than rebounding.