Two Bank of Korea board members saw case for rate cut in May - minutes

Credit: REUTERS/KIM HONG-JI

Two of the Bank of Korea's seven board members saw the need for a cut in the policy interest rate at its May 31 meeting, although only one of them voted to do so, minutes released on Tuesday showed.

By Joori Roh

SEOUL, June 18 (Reuters) - Two of the Bank of Korea's seven board members saw the need for a cut in the policy interest rate at its May 31 meeting, although only one of them voted to do so, minutes released on Tuesday showed.

At a news conference after the meeting, Bank of Korea Governor Lee Ju-yeol said Cho Dong-chul voted to cut the policy rate KROCRT=ECI against a majority who voted to keep it at 1.75%, but did not disclose more details at that time.

Cho voted for a rate cut of 25 basis points, saying downside risks to the economy were already materialising and there were considerable risks to the central bank's economic growth and inflation targets.

Another member, who was not identified, said it was appropriate to cut the rate given recent growth and inflation conditions, but proposed to cut it at the next meeting after giving a notice to financial markets and economic agents.

Economists said details from the minutes indicated that more members would now vote to cut the policy rate at the next meeting, although it was not certain whether they would outnumber those still preferring to hold the rate steady.

"We have advanced the timing for a rate cut to the third quarter, more likely in August, from the fourth after recent remarks by the Bank of Korea's governor and the finance minister, but I think a cut in July also seems possible," said Kong Dong-rak, an economist at Daishin Securities.

Finance Minister Hong Nam-ki said on June 12 that Bank of Korea Governor Lee's remarks earlier in the day appeared to show the bank was moving towards policy easing.

South Korean financial markets are already pricing in a rate cut soon, with treasury bonds for all maturities yielding less than the policy interest rate that applies to the central bank's 7-day repurchase agreement deals.

South Korea's trade-reliant economy, Asia's fourth-largest, has been hit hard by the escalating U.S.-China trade war and unexpectedly shrank 0.4% in the first quarter on a sequential basis.

Reflecting the worsening environment, international credit ratings agency Fitch this week sharply cut its forecast for South Korea's 2019 economic growth to 2.0% from 2.5%.

Consumer sentiment is also weak, keeping annual inflation at a low 0.6% on average for the first five months of this year, far below the central bank's projection of 1.1% for all of this year as well as its target of 2.0%.

The Bank of Korea next reviews its policy on July 18.

(Editing by Choonsik Yoo & Kim Coghill)

((joori.roh@thomsonreuters.com; +82 2 3704 5642; Reuters Messaging: joori.roh.thomsonreuters.com@reuters.net))

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