Bank of Korea freezes key rate for 9th month

(ATTN: RECASTS lead; ADDS statement by BOK in paras 3-5; TRIMS throughout)
By Kim Soo-yeon
SEOUL, Nov. 12 (Yonhap) -- South Korea's central bank froze its key interest rate
for the ninth straight month on Thursday, saying that although the local economy
is recovering more evidently, uncertainty persists.
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. It cut the
rate by a total of 3.25 percentage points between October 2008 and February in a
bid to put the brakes on a sharp economic freefall.
"It has recently been more evident that economic activity is in a recovery
phase," the BOK said in a statement.
"The Korean economy is likely to continue to maintain its positive on-quarter
growth as the global economy is improving and inventories are being restocked,
but uncertainty for growth persists due to factors like the spread of Influenza
A."
The central bank said it will maintain its accommodative policy stance for the
time being by focusing on sustaining the economic recovery.
A set of economic data are underpinning optimism that the Korean economy is
recovering at a faster-than-expected pace compared with other major economies.
Asia's fourth-largest economy grew 2.9 percent in the third quarter from three
months earlier, the fastest quarterly expansion in more than seven years. South
Korea's industrial output expanded 11 percent in September from a year earlier,
the fastest annual pace since January 2008.
The Korea Development Institute, a state-run think tank, said this week the
economy remains in a "recovery phase" as exports and consumption are rebounding
fast.
But despite the upbeat readings, the government and the central bank have cast
cautious outlooks for the economy, citing persisting economic uncertainty at home
and abroad.
A strong third-quarter economic performance was mainly driven by a wrap-up in
inventory adjustment, and the economy is widely expected to lose steam in the
fourth quarter due to the waning effects of fiscal spending.
Many economists have predicted the central bank will leave the rate unchanged
throughout this year and that any potential rate increase would likely come in
the first quarter of next year.
"Due to economic uncertainty at home and abroad, a possible rate hike may come in
the first quarter of next year after the central bank assesses the pace of
economic recovery," said Oh Chang-sup, an economist at IBK Securities.
In September, BOK Gov. Lee Seong-tae hinted that the bank could hike the rate if
housing prices continue to rise, but he softened his tone last month, saying that
his remarks in September did not mean an imminent rate increase -- a signal that
the BOK would not be in a hurry to tighten its monetary policy.
The government has reiterated that it will maintain its expansionary
macroeconomic policy stance until a sustainable economic recovery is assured.
sooyeon@yna.co.kr
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