BOK chief hints at further rate cut

SEOUL, Oct. 19 (Yonhap) -- The chief of South Korea's central bank said Sunday the country's inflation is expected to remain close to 5 percent this year, but noted inflationary pressure will likely weaken next year if the financial and foreign exchange markets stabilize.

"In conducting a monetary policy, the central bank focuses on curbing inflation,
but it also factors in the economy and the financial market situations," Bank of
Korea (BOK) Gov. Lee Seong-tae told a joint press conference after the
government, the BOK, and the regulatory Financial Services Commission unveiled a
set of packages to calm markets.
"The BOK is managing the policy by taking into account the economic situations
for the next six months or one year. Once the direction of a monetary policy is
set, the policy cannot help going in that course for some time," Lee said,
hinting at an additional rate cut.
His remarks came as the BOK slashed its key interest rate to 5 percent from 5.25
percent on Oct. 9 in a concerted effort to soothe global financial turmoil and
stem the drastic slowdown of the local economy. It was the BOK's first cut since
November 2004, marking the end of the three-year-old cycle of monetary
tightening.
The country's consumer prices slowed to 5.1 percent on-year in September on
falling oil prices, but breached the BOK's target range of 2.5-3.5 percent for
the 10th straight month. Meanwhile, the growth of Asia's fourth-largest economy
is losing ground, led by faltering domestic demand.
After the October rate-setting meeting, market watchers predict the BOK will have
no choice but to slash the benchmark rate more in the coming months in order to
keep the repercussions of the current global credit crunch from spilling over to
the real economy. The BOK's chief left open the possibility of additional rate
cuts, saying that it is possible there will be interest rate changes later.
South Korea's government on Sunday announced that it will provide US$100 billion
worth of state guarantees on foreign debts to be raised by local banks as part of
efforts to ease the dollar shortage in the local financial sector and shore up
market confidence.
Separately, it will supply $30 billion "as soon as possible" to local banks and
exporters by using its foreign reserve holdings, in addition to its recent $15
billion injection into the financial system.
The BOK will also inject adequate Korean won liquidity into the market by buying
repurchase agreement deals and government bonds. On Friday, the central bank said
it will introduce an open bidding system for won-dollar swaps in an effort to
directly supply dollar liquidity to more banks.
sooyeon@yna.co.kr
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