Bank of Korea freezes key rate for 10th month

(ATTN: RECASTS lead; ADDS more details and statement by BOK in paras 3-4,11; TRIMS
throughout)
By Kim Soo-yeon
SEOUL, Dec. 10 (Yonhap) -- South Korea's central bank left its key interest rate
unchanged for the 10th straight month on Thursday, saying doubts over the
sustainability of the economic recovery persist.
In a monthly policy meeting, the Bank of Korea (BOK) froze the benchmark
seven-day repo rate, dubbed the base rate, 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 bolster the slumping economy.
"The Korean economy will maintain its growth trend on the back of an improving
global economic environment, but there is a considerable degree of uncertainty
over the growth path," the BOK said in a statement.
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 indicators are backing 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 next year.
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.
"Although the local economy is improving, the probability is rising that the pace
or momentum for the recovery will weaken," said Shin Dong-su, an economist at NH
Investment & Securities Co.
Experts 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.
They added that the BOK is less likely to feel burdened in weighing the timing of
a rate hike because it expanded its inflation target range for 2010-2012. 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 BOK will likely hike the rate in the first quarter, which is being seen as
the time to start normalizing the record-low interest rate to curb inflation
expectations and possible asset bubbles," said Kim Yoon-ki, an economist at the
Daishin Economic Research Institute.
sooyeon@yna.co.kr
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