Bank of Korea freezes key rate at 2 pct

(ATTN: RECASTS lead; CHANGES paras 2-7,15)
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, saying that a sharp fall in economic
activity has moderated.
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, as widely expected. Between
October and February, the BOK had made six consecutive rate cuts totaling 3.25
percentage points.
"Although domestic economic activity has not yet been able to pull out of its
downturn, some indicators point to the moderation of the abrupt slowdown of the
last few months," the BOK said in a statement. "Some business economic data hint
at a slowdown of the downward trend of economic activity."
The rate freeze comes amid rising optimism 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, easing 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.
On Wednesday, the government said that the Korean economy might have hit bottom
in the first quarter or will do so in the current quarter.
"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."
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 improvement, 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 was 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.
But some analysts say that additional rate reductions would do little to spur the
slowing economy, adding that the BOK will likely freeze the rate for the time
being.
sooyeon@yna.co.kr
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