(3rd LD) BOK upbeat over economy, but says uncertainty still persists

(ATTN: RECASTS first 3 paras; UPDATES with remarks by economists in paras 12-16;
REWRITES throughout)
By Kim Soo-yeon
SEOUL, Aug. 11 (Yonhap) -- South Korea's top central banker on Tuesday cast a
more upbeat view on the economy but said uncertainty still lingers, suggesting
that the bank's easing policy stance may continue for the time being.

"Second-quarter growth was better-than-expected. In the second half, the economy
is likely to post positive on-quarter growth as the private sector is
recovering," Bank of Korea (BOK) Gov. Lee Seong-tae told a press conference after
a monthly rate decision. "The BOK will closely watch economic activity in the
third quarter."
Lee noted, however, that as major advanced economies have yet to make a
full-blown recovery, uncertainties persist.
His remarks came after the BOK froze its key interest rate at a record low of 2
percent for the sixth straight month in August, as widely expected. The central
bank lowered the benchmark seven-day repo rate by a total of 3.25 percentage
points between October and February in a bid to bolster the slumping economy.
The Korean economy grew 2.3 percent in the second quarter from three months
earlier, the fastest pace in over five years, on the back of economic stimulus
packages.
A batch of economic data are underpinning rising optimism that Asia's fourth
largest economy is bottoming out, although the economic outlook is still murky,
leading policymakers to strike a cautious note about the pace of the economic
recovery.
South Korea's industrial output rose 5.7 percent in June from a month earlier,
marking the sixth straight monthly expansion. The country logged a trade surplus
of US$5.14 billion in July, lending firm support to the Korean currency, which
has gained about 27 percent against the U.S. dollar since early March.
Experts say that as the effects of strong fiscal spending could wane down the
road, the local economy may not be able to sustain the rapid pace of recovery in
the second half.
The government and the BOK's aggressive easing stance helped pull the economy out
of its worst downturn in more than decade. But as the economy is now showing
signs of improvement, debate about the timing of tightening measures by the BOK
has grown.
"Depending on how you define a so-called exit plan, it can be said that the BOK
has started to unwind unconventional measures in some way," Lee said. Last week,
the BOK completed retrieving dollar funds it supplied to local banks through swap
deals by using tapping into foreign exchange reserves.
Economists say that a possible rate hike by the BOK will hinge on how strongly
the Korean economy grows in the third quarter and how fast the global economy
rebounds. They add that before doing so, the central bank is likely to gradually
soak up ample liquidity by reversing unconventional measures that it adopted in
the midst of the global financial turmoil.
"Although the BOK presented a more upbeat view on the economy, I think that a
full-fledged recovery in major advanced economies should come before the BOK
shifts into a tightening stance," said Lee Sung-kwon, an economist at Goodmorning
Shinhan Securities. "The central bank is likely to raise the rate in the first
quarter of next year," he said.
Oh Chang-sup, an economist at IBK Securities, cast a similar view, adding that
Gov. Lee signaled the central bank would gauge the timing of a rate hike down the
road, but that it will depend on the pace of the global recovery.
Others argue that as the Korean economy is picking up faster than expected, the
BOK may raise borrowing costs in the fourth quarter.
"Given the pace of the economic recovery, it is possible that the BOK will raise
the rate in December," said Jun Min-kyoo, an economist at Korea Investment &
Securities Co.
sooyeon@yna.co.kr
(END)