(3rd LD) BOK freezes key rate for 10th month, hints at rate hike

(ATTN: RECASTS headline, lead; UPDATES with more remarks by economists in paras 10-14)
By Kim Soo-yeon
SEOUL, Dec. 10 (Yonhap) -- South Korea's central bank froze its key interest rate
for the 10th straight month on Thursday and hinted that the bank will mull the
timing of a rate hike amid growing prospects of an economic rebound.

"The prospect for the Korean economy is quite bright although there is some
unease in the global and local economies," Bank of Korea (BOK) Gov. Lee Seong-tae
said after the bank left the benchmark seven-day repo rate unchanged at a record
low of 2 percent.
"By reviewing economic data and inflation every month, the bank will weigh the
timing (of a possible rate hike)," Lee said, adding that the process of
normalizing the key rate might be gradual.
A set of economic data are underpinning optimism that the Korean economy is
quickly pulling out of its worst downturn in more than a decade, sparking debate
over when and how to roll back expansionary fiscal and monetary policies.
Asia's fourth-largest economy grew 3.2 percent in the third quarter from three
months earlier, the fastest quarterly expansion in more than seven years, due to
improving domestic demand and brisk exports.
The Korean economy is widely expected to avoid a contraction this year.
International organizations and local think tanks have put forth upbeat outlooks
for the Korean economy to around 4 and 5 percent next year.
Lee said the current level of the key rate would be too low if the economy
expands around 5 percent in 2010.
"Currently, we are standing away from the exit door. But there is the need to
move closer to the door (for a timely exit)," Lee said.
But experts are divided over when the BOK will start to shift into a tight bias.
They said the BOK may raise borrowing costs in the first quarter of next year,
with some betting that a rate hike will be delayed until the first half.
"Today's remarks seemed to signal a rate hike," Yang Jin-mo, a fixed-income
analyst at SK Securities Co said. "The central bank may raise borrowing costs in
February."
But others said given the lingering uncertainty in the global financial markets
and the growth outlook, together with the government's hope to persist with
expansionary policies, it would be not easy for the BOK to raise the rate until
the end of the first half.
Despite the strong readings, policymakers have struck a cautious tone, citing a
murky outlook for the global economy. Analysts say the recent Dubai debt problem,
albeit somewhat eased, added fuel to economic uncertainty.
They added that as the BOK expanded its inflation target range for 2010-2012, it
can receive more room to manage monetary policy flexibly. The bank set its median
inflation target at 3 percent for the three-year period with a margin of plus or
minus 1 percentage point.
"The governor's remarks underscored the necessity for a rate hike, but I don't
see any chance of the coming early because of economic uncertainty," Kim Jae-eun,
an economist at Hyundai Securities Co. "I've kept my previous view that a rate
rise will likely come in June."
The BOK cut the rate by a total of 3.25 percentage points between October 2008
and February in a bid to bolster the slumping economy.
sooyeon@yna.co.kr
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