BOK maintains key interest rate

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BOK maintains key interest rate

The central bank held the key borrowing rate for nearly a year, citing uncertainties in both domestic and global markets.

In particular, the recently renewed European sovereign debt problems are threatening not only global economic growth but Korea’s as well.

“Recently the global financial market has been showing signs of trying to avoid risks including the worsening fiscal debt in Spain, a sluggish economy in the euro zone and the disappointing job performance in the U.S.,” Kim Choong-soo, Bank of Korea governor, said yesterday. “Furthermore the uncertainty contributed by Greece still lingers.”

In regards to the Korean economy, Kim said although exports continue to maintain relatively stable growth, consumption and investment have fallen, holding the economy back from a full recovery.

Last week in Manila while attending the Asean+3 meeting, the central bank governor noted that the local economy was showing mixed signals and it was difficult to judge whether it had hit rock bottom, was on the course of recovery or if it would continue to deflate.

He stressed that for the economy to see even mild growth, the domestic market needs to be revitalized and contribute to growth.

Due to uncertainties in the global economy, the central bank’s monetary policy committee has maintained the borrowing rate since July last year after bumping up the rate from 3 percent to 3.25 percent in June 2011.

The central bank governor also stressed that there were no proposals made to lower the key borrowing rate.

“We are still in the course of normalizing and we have no intension of changing our current direction,” Kim said. “Growth in consumer prices is at the 2.5 percent level, but when we take out welfare and childcare costs it is at 3.1 percent and inflation expectations are still in the 3 percent range,” the governor added. “Additionally there are too many external uncertainties.”

Moody’s, in a review of the BOK’s decision, raised the possibility that the central bank may lower the rate in the future.

“Despite cooling inflation, which gives the central bank scope to lower interest rates, policy makers are sitting pat because growth is holding up well,” Matthew Circosta, a Moody’s economist, said.

“The BOK has been somewhat of a basket case in this global easing cycle, having not moved on interest rates in nearly a year,” Circosta added.

“We still think global worries leave growth tilted to the downside,” he said, “but the bank is likely to wait for further proof before opting for a rate cut.”

By Lee Ho-jeong[]
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