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Bank of Korea freezes key rate for 9th month
Writer : Sender
Nov 12, 2009
South Korea's central bank froze its key interest rate for the ninth straight month on Thursday as a nascent economic recovery has yet to prove sustainable.
In a monthly policy meeting, the Bank of Korea (BOK) left the benchmark seven-day repo rate unchanged at a record low of 2 percent. It cut the rate by a total of 3.25 percentage points between October 2008 and February in a bid to put the brakes on a sharp economic free-fall.
The decision is in line with a forecast by 16 economists at 17 financial institutions polled by Yonhap Infomax, the financial news arm of Yonhap News Agency.
"Due to economic uncertainty at home and abroad, a possible rate hike may come in the first quarter of next year after the central bank assesses the pace of economic recovery," said Oh Chang-sup, an economist at IBK Securities.
A set of economic data are underpinning optimism that the Korean economy is recovering at a faster-than-expected pace compared with other major economies.
Asia's fourth-largest economy grew 2.9 percent in the third quarter from three months earlier, the fastest quarterly expansion in more than seven years. South Korea's industrial output expanded 11 percent in September from a year earlier, the fastest annual pace since January 2008.
The state-run think tank Korea Development Institute said this week that the economy remains in a "recovery phase" as exports and consumption are rebounding fast.
But despite the upbeat readings, the government and the central bank cast cautious outlooks for the economy, citing persisting economic uncertainty at home and abroad.
The strong third-quarter economic performance was mainly driven by a wrap-up in inventory adjustment and the economy is widely expected to lose steam in the fourth quarter due to waning effects of fiscal spending.
More economists predicted that the central bank will leave the rate unchanged throughout this year and a potential rate increase is likely to come in the first quarter of next year.
In September, BOK Gov. Lee Seong-tae hinted that the bank could hike the rate if housing prices continue to rise, but he softened his tone last month, saying that his remarks in September did not mean an imminent rate increase in a signal that the BOK would not be in a hurry to tighten its monetary policy.
The government has reiterated that it will maintain its expansionary macroeconomic policy stance until a sustainable economic recovery is assured.
(Source: Yonhap News)
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