South Korea central bank to hold rates in December, cut eyed in first-quarter of 2015

South Korea central bank to hold rates in December, cut eyed in first-quarter of 2015

Thirty of 31 analysts polled by Reuters forecast the Bank of Korea would keep the base rate unchanged at 2.00 percent for a second month after holding it steady in November.

When queried over the central bank's next policy move, 19 out of 25 who gave a clear direction forecast it would cut rates, most likely in the first quarter of 2015. The remaining six predicted a hike, probably toward the end of next year.

"Recent economic indicators have shown the country stands at risk of falling into deflation and there is also a chance that fourth-quarter growth may be worse than expected," said Lee Jung-joon, an economist at HMC Securities.

"The central bank will find reasons to justify a rate cut after they confirm GDP numbers early next year."

Three analysts said they saw no change in the base rate until 2016.

Most analysts who forecast a rate cut in the central bank's policy rate said the main focus will be on whether this week's decision is unanimous or not. One or two members on the central bank's monetary policy board are expected to dissent.

Ex-finance ministry official Chung Hae-bang has revealed himself to be most dovish of the board members, dissenting twice this year alone when he called for rate cuts in July and September, although interest rates were held steady.

The central bank cut its interest rates in August and October while its decision to hold rates last month was agreed upon by all members of the board.

Exports have propped up the economy for most of this year. The economy is expected by the trade ministry to grow 3 percent in annual terms, versus the 2.1 percent growth posted last year.

Held down by low oil and farm prices, inflation remains subdued and well outside the central bank's target band. A fragile recovery in domestic consumption is unlikely to bring about significant changes in price pressures next year, analysts said.

(Reporting by Sohee Kim, Kahyun Yang and Joonhee Yu; Writing by Christine Kim; Editing by Eric Meijer)