Bank of Korea to freeze key rate for April: poll

SEOUL, April 3 (Yonhap) -- South Korea's central bank is widely expected to
freeze its key interest rate for the second straight month in April amid cautious
optimism that a sharp fall in economic growth has eased, a poll showed Friday.

All economists at 16 financial institutions predicted that the Bank of Korea
(BOK) will leave the benchmark seven-day repo rate unchanged at a record low of 2
percent on Thursday, according to the poll by Yonhap Infomax, the financial news
arm of Yonhap News Agency.
Last month, the BOK stood pat on the rate after six consecutive cuts in a bid to
gauge the effects of reductions on the economy and brace for a deeper economic
downturn. Between October and February, it slashed the rate by a total of 3.25
percentage points.
"Concerns over the real economy have somewhat subdued as indicators like
industrial output showed a better-than-expected improvement," said Lee Sung-kwon,
an economist at Goodmorning Shinhan Securities Co. "The won's strength to the
dollar in recent sessions also eased upward pressure on inflation."
Several economic data hinted that Asia's fourth-largest economy might be
bottoming out.
In February, the country's industrial output sank 10.3 percent from a year
earlier, slowing from a 25.5 percent on-year fall the previous month. Production
gained 6.8 percent on-month in February after posting a 1.6 percent advance in
January.
South Korea's trade surplus reached a record US$4.6 billion in March as imports
declined faster than exports.
Meanwhile, analysts said the eased growth of consumer prices would give the BOK
leeway to freeze the rate this month. The country's consumer prices rose 3.9
percent last month from a year earlier, moderating from a 4.1 percent on-year
gain in February.
But despite the early signs of a recovery, many experts warn it is too early to
say the economy is entering a full-blown recovery phase given uncertainty
surrounding the global economic slump.
The Korean economy contracted 5.1 percent last quarter from three months earlier,
the worst performance in more than a decade, due to tumbling exports and sluggish
domestic demand. Asia's fourth-largest economy is widely expected to log negative
growth this year with the government predicting a 2 percent fall.
Last month, the government unveiled a 28.9 trillion won (US$21.7 billion) extra
budget, the biggest ever, aimed at creating more jobs and jump-starting the
sputtering economy. Of the total, it set aside 17.7 trillion won for fiscal
spending.
Experts said the BOK still has room to resume its monetary easing steps down the
road, given lingering concerns over a further deterioration of the economy.
"The economic downturn is expected to be longer and deeper than previously
anticipated," BOK Gov. Lee Seong-tae said after the March rate-setting meeting,
leaving a door open for further action.
But some analysts say the central bank may choose to print more money rather than
cut rates further as they believe that additional rate reductions would do little
to spur the slowing economy.
sooyeon@yna.co.kr
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