Bank of Korea freezes key rate for 12th month in Feb.

(ATTN: UPDATES with more remarks by economists in paras 9-13; TRIMS throughout)
By Kim Soo-yeon
SEOUL, Feb. 11 (Yonhap) -- South Korea's central bank froze its key interest rate
for the 12th straight month on Thursday and signaled that it would keep the
easing policy for the time being amid growing economic uncertainty.
Bank of Korea (BOK) Gov. Lee Seong-tae said only after clear signs that the
economic recovery is sustainable appear, the bank will raise borrowing costs.
"As the Korean economy has yet to be on a solid footing, the central bank plans
to cautiously keep the accommodative stance," Lee told a press conference after
the bank kept the benchmark seven-day repo rate at a record low of 2 percent.
"But the BOK will manage the policy by closely watching possible side effects the
low rates could have on the economy."
South Korea's economy has been on a recovery track, but recent concerns about
snowballing fiscal deficits in some European countries and tightening measures by
China have amplified economic uncertainty, prompting policymakers to be more
cautious about the pace of the economic recovery.
European debt woes roiled global financial markets last week, denting investor
appetite for risky assets. Job markets also remained chilly, with South Korea's
jobless rate jumping to 5 percent last month, the fastest increase in almost nine
years.
But Lee downplayed the impact of the euro-zone debt fears on the Korean economy.
"Economic uncertainties persist, but not to the extent that they would severely
hurt the growth forecast," the governor said, adding that the Korean economy is
expected to grow modestly this year.
Economic data is sending mixed signals about the recovery. Asia's fourth-largest
economy is recovering on the back of robust exports and improving domestic
demand, but its growth slowed down in the fourth quarter and the job market has
remained sluggish.
Experts said the BOK may not increase the key rate in the first half, due to
persisting economic uncertainty at home and abroad and political pressures.
"Lee's remarks seemed to underscore the view that there will not be an imminent
rate hike," said June Park, an economist at Woori Investment & Securities Co. "I
believe that a rate hike will likely come in the third quarter because the
central bank sees no direct risks from a long streak of low rates, and
uncertainty from overseas has heightened."
Some analysts even said the timing of a potential rate increase may be pushed
back into the fourth quarter.
"Uncertainty in the global financial markets lingers as issues including European
fiscal concerns are not likely to be settled in the near term," said Yoon
Yeo-sam, an analyst at Daewoo Securities Co.
The country's vice finance minister attended January's rate-setting meeting as an
observer. It was the first time the government exercised its right to attend the
BOK's policy meeting in over 10 years, a move which experts say was aimed at
preventing the central bank from hiking the rate in the near term.
The government has forecast that the Korean economy will grow 5 percent this
year, but it has reiterated that it will stick to an "expansionary" policy for
the time being as the economic recovery has yet to gain a solid footing. It has
put priority on boosting job creation this year as the job market continues to
slump despite a rebounding real economy.
The BOK cut the rate by a total of 3.25 percentage points between October 2008
and February 2009 in a bid to bolster the slumping economy.
sooyeon@yna.co.kr
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