Bank of Korea freezes key rate for 7th month

By Kim Soo-yeon
SEOUL, Sept. 10 (Yonhap) -- South Korea's central bank froze its key interest
rate for the seventh straight month on Thursday as nascent signs of an economic
recovery left doubts about sustainability.
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. The BOK lowered the rate by a
total of 3.25 percentage points between October and February as it tried to put
the brakes on a sharp economic free-fall.
Thursday's decision was in line with a forecast by all economists at 16 financial
institutions polled by Yonhap Infomax, the financial news arm of Yonhap News
Agency.
"It will take considerable time for the economy to enter a full-fledged recovery
phase," said Lee Sung-kwon, an economist at Shinhan Investment Corp, adding
recent inflationary pressure is "benign."
Economic data are underpinning growing optimism that the South Korean economy,
Asia's fourth-largest, has passed its worst downturn in more than a decade
although the overall outlook remains murky.
The country's industrial output posted its first annual rise in 10 months in
July, and a set of business and consumer confidence indicators rose to highs not
seen in years last month.
Korea's consumer inflation remained relatively low at 2.2 percent in August,
though it grew at the fastest pace in three months.
Experts say that although discussions over the timing of a rate hike will likely
heat up down the road, it is premature for the BOK to exit from its soft monetary
stance for now given the still-fragile recovery.
After August's rate-setting meeting, BOK Gov. Lee Seong-tae hinted that the bank
will likely mull raising the rate, saying that it will keep a wary eye on
economic trends during the third quarter.
Some argue that if third-quarter economic performance is stronger than expected,
the bank may make a rate increase in the October-December period.
Korea's export-dependent economy grew 2.6 percent in the second quarter from
three months earlier on the back of government stimulus measures. It advanced 0.1
percent on-quarter in the January-March period after tumbling 5.1 percent in the
final quarter of last year.
A number of global investment banks have raised their growth forecasts for the
Korean economy, and on Tuesday the state-run Korea Development Institute said the
economy will likely shrink 0.7 percent this year -- better than its previous
projection of a 2.3 percent decline.
The government and the BOK put their 2009 estimates at a 1.5 percent fall and a
1.6 percent contraction, respectively.
The government has reiterated that it will stick to its "expansionary" economic
policy for the time being, as it is too early to say that the economy is making a
full recovery.
sooyeon@yna.co.kr
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