SEOUL – South Korea's central bank is expected to slash its key interest rate in October in the wake of its August rate cut due to a slow recovery in the country's economy and volatile foreign exchange rates, market watchers said Sunday. In August, the Bank of Korea cut the base rate to 2.25 percent from 2.5 percent, the first rate reduction in 15 months, in an effort to lend support to the government's efforts to boost the economy. Last month, the central bank froze the rate as widely expected. The BOK is scheduled to hold its October rate-setting meeting on Oct. 15. The South Korean economy is expected to expand 3.6 percent in 2015 from this year amid sluggish private consumption and low inflation, a private think tank forecast Sunday. The Hyundai Research Institute predicted Asia's fourth-largest economy will likely grow 3.5 percent in the first half of next year and gain 3.6 percent in the second half. The think tank's 2015 outlook is the same as its forecast of 3.6 percent for this year. HRI's growth forecast for next year, however, is lower than a 4 percent prediction made by the government and the Bank of Korea in July. The think tank said the country's consumer spending will remain in the doldrums next year due to a slowdown in growth of real wages and the increased household debt-servicing burden. However, sales at South Korea's three major discount outlet chains and department stores grew from a year earlier in August, fending off worries over faltering domestic demand and putting the BOK in a dilemma. The combined sales of the country's three major discount outlet chains increased 3.2 percent on-year last month, marking a sharp turnaround from an on-year drop of 4.6 percent in the previous month, according to the Ministry of Trade, Industry and Energy. "We may have to decide (whether it is needed to raise the key interest rate) after reviewing indicators and data favorable for assessing economic conditions until the opening of the rate-setting meeting slated for Oct. 15," said a member of BOK's monetary policy committee, on condition of anonymity. In addition to the weak economic recovery, the volatility of foreign exchange rates is lending weight to predictions of an interest rate cut in October. The South Korean won has been losing against the US dollar since June, when the local currency finished at an average 1,018.70 won per the dollar. Last week, the won sharply fell to the 1,060 won mark. In contrast, the won has been gaining versus the Japanese yen, hurting South Korean exporters' earnings. The won traded at an average 1,003.66 won per 100 yen in July. The local currency rose to an average 963.16 won per 100 yen in September. — Agencies
