BOK to hold monetary policy meeting ThursdayUpdated: 2014-08-13 21:58:50 (KST)
Among economists, it's a widely held belief that the Bank of Korea will cut its benchmark interest rate at Thursday's Monetary Policy Committee.
Now the focus is on by how much.
Reflecting the expectations, the yield on three-year government debt has slid over the last couple of months,. inching closer to the key interest rate.
According to polls, eight out of 10 financial experts estimate that a cut of 0.2-5 percentage points would push the benchmark KOSPI index up by 60 to 70 points.
"If the government and the central bank fail to cooperate on lowering the interest rate, the effects of new policy measures to boost the economy may be in vain in the short-term.
Pundits speculate that central bank Governor Lee Ju-yeol gave the signal to cut the rate at the policy meeting last month.
However, there are concerns that a rate cut may not be as effective as many anticipate, and that it won't help to address swelling household debt, which has now surpassed 1 trillion U.S. dollars.
"A lower interest rate causes an increase in household debt, so a rate cut may help the economy in the short term, but there are potential risk factors that could lead to more household debt in the future."
That puts the Bank of Korea in a tough spot: another rate freeze would almost certainly trigger criticism over not working in step with market policy, while an interest rate cut, without offering clear reasoning, may mean lost trust from the public over the abrupt decision.
Sohn Jung-in, Arirang News.