Bank of Korea freezes key rate at 2 pct

By Kim Soo-yeon
SEOUL, April 9 (Yonhap) -- South Korea's central bank froze its key interest rate
for the second straight month on Thursday amid cautious optimism that a sharp
fall in economic growth has eased.
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. Between October and February,
the BOK had made six consecutive rate cuts totaling 3.25 percentage points.
The decision is in line with a forecast by all economists at 16 financial
institutions polled by Yonhap Infomax, the financial news arm of Yonhap News
Agency.
"Concerns over the economy have somewhat subdued as indicators like factory
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, moderating 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, prompting the local currency to gain almost 11
percent to the greenback last month.
Meanwhile, analysts said the eased growth of inflation might give the BOK leeway
to stand pat on 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 some signs of improvements, 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 and sluggish job markets.
The Korean economy contracted 5.1 percent in the fourth quarter of last year from
three months earlier, the worst performance in more than a decade, buffeted by
tumbling exports and weak domestic demand. Asia's fourth-largest economy is
widely expected to log negative growth in 2009 with the government predicting a 2
percent fall.
The country's jobless rate jumped to a four-year high of 3.9 percent in February
with over 140,000 jobs eliminated from payrolls compared with a year earlier. The
job loss is the steepest since September 2003.
Last month, the government unveiled a 28.9 trillion won (US$21.3 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 a possibility of the BOK resuming its monetary easing cannot be
ruled out, 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 that additional rate reductions would do little to spur the
slowing economy, betting that the central bank may choose to inject more money
into the financial system.
sooyeon@yna.co.kr
(END)