ID :
187641
Fri, 06/10/2011 - 07:26
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https://oananews.org//node/187641
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BOK hikes key rate to 3.25 pct on inflation risk
(ATTN: UPDATES with BOK statement and more details in paras 4-13; RECASTS throughout)
By Kim Soo-yeon
SEOUL, June 10 (Yonhap) -- South Korea's central bank raised the key interest rate by a quarter percentage point on Friday following a two-month freeze, resuming its monetary tightening to curb persistent inflationary pressure.
Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers hiked the benchmark seven-day repo rate, dubbed the base rate, to 3.25 percent for June.
The June rate hike, which marked the third increase this year, came in a delicate situation as economic data from at home and aboard indicates that the momentum of the economic recovery is slowing while inflationary pressure still persists.
The decision came as a surprise to the market as many analysts tilted toward a forecast of a rate freeze this month. The BOK has raised the borrowing costs by a combined 1.25 percentage points in five steps since July last year.
"Consumer prices are likely to sustain their strong upward trend, due mainly to the economic growth and high oil prices," the BOK said in a statement.
The central bank said core inflation, which excludes volatile oil and food prices, will likely maintain its upward trend down the road, indicating that demand-pull inflationary pressure remains high.
Analysts said that despite concerns about economic uncertainty, the rate hike came after the country's consumer prices exceeded the upper ceiling of the BOK's 2-4 percent inflation target band for the fifth consecutive month in May.
"Even with economic uncertainty like Greece's debt concerns, demand-pull inflationary pressure is growing. There will be price pressure as public utility charges will rise in the second half," said Kim Sung-no, a chief economist at KB Investment & Securities Co. "One more rate increase is anticipated this year."
The growth of consumer inflation slightly slowed to 4.1 percent on-year in May from a 4.2 percent on-year expansion in April. But core inflation rose 3.5 percent last month from a year earlier, the highest increase in 23 months.
South Korea is facing difficulties in taming inflation as still-high oil prices and the sustained economic recovery are putting upward pressure on inflation.
Earlier in the day, South Korea's new finance minister Bahk Jae-wan presided over a meeting with heads from other related government bodies to discuss ways to stabilize consumer prices.
He said inflationary pressure from the demand side has begun to increase, calling for crafting all means to keep price stability.
The Korean economy grew 1.3 percent in the first quarter from three months earlier on strong exports, which account for about 50 percent of the economy. But domestic demand has been largely lackluster as rising inflation is crimping households' income growth and purchasing power.
But South Korea is also facing downside risks to the growth, causing BOK policymakers to act cautiously in raising the rate even though the key rate is still too low compared with its economic fundamentals.
Volatility of global financial markets has increased ahead of the Federal Reserve's planned end of a US$600 billion asset-buying program at the end of June. Fears about Greece's potential debt restructuring have weighed on the global markets. On the domestic front, problems of ailing savings banks and snowballing household debt have become headaches for policymakers.
Analysts said as the central bank raised the borrowing costs this month, it will likely take a pause in July and there might be one more rate hike this year.
Gov. Kim earlier said that the BOK will try to raise the interest rate carefully because a steep rate increase could dent the economy.
The BOK put its 2011 inflation projection at 3.9 percent while the government is seeking to contain inflation at around 3 percent. Analysts say it will be hard for the government to attain such a goal due to the mounting inflation pressure.
By Kim Soo-yeon
SEOUL, June 10 (Yonhap) -- South Korea's central bank raised the key interest rate by a quarter percentage point on Friday following a two-month freeze, resuming its monetary tightening to curb persistent inflationary pressure.
Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers hiked the benchmark seven-day repo rate, dubbed the base rate, to 3.25 percent for June.
The June rate hike, which marked the third increase this year, came in a delicate situation as economic data from at home and aboard indicates that the momentum of the economic recovery is slowing while inflationary pressure still persists.
The decision came as a surprise to the market as many analysts tilted toward a forecast of a rate freeze this month. The BOK has raised the borrowing costs by a combined 1.25 percentage points in five steps since July last year.
"Consumer prices are likely to sustain their strong upward trend, due mainly to the economic growth and high oil prices," the BOK said in a statement.
The central bank said core inflation, which excludes volatile oil and food prices, will likely maintain its upward trend down the road, indicating that demand-pull inflationary pressure remains high.
Analysts said that despite concerns about economic uncertainty, the rate hike came after the country's consumer prices exceeded the upper ceiling of the BOK's 2-4 percent inflation target band for the fifth consecutive month in May.
"Even with economic uncertainty like Greece's debt concerns, demand-pull inflationary pressure is growing. There will be price pressure as public utility charges will rise in the second half," said Kim Sung-no, a chief economist at KB Investment & Securities Co. "One more rate increase is anticipated this year."
The growth of consumer inflation slightly slowed to 4.1 percent on-year in May from a 4.2 percent on-year expansion in April. But core inflation rose 3.5 percent last month from a year earlier, the highest increase in 23 months.
South Korea is facing difficulties in taming inflation as still-high oil prices and the sustained economic recovery are putting upward pressure on inflation.
Earlier in the day, South Korea's new finance minister Bahk Jae-wan presided over a meeting with heads from other related government bodies to discuss ways to stabilize consumer prices.
He said inflationary pressure from the demand side has begun to increase, calling for crafting all means to keep price stability.
The Korean economy grew 1.3 percent in the first quarter from three months earlier on strong exports, which account for about 50 percent of the economy. But domestic demand has been largely lackluster as rising inflation is crimping households' income growth and purchasing power.
But South Korea is also facing downside risks to the growth, causing BOK policymakers to act cautiously in raising the rate even though the key rate is still too low compared with its economic fundamentals.
Volatility of global financial markets has increased ahead of the Federal Reserve's planned end of a US$600 billion asset-buying program at the end of June. Fears about Greece's potential debt restructuring have weighed on the global markets. On the domestic front, problems of ailing savings banks and snowballing household debt have become headaches for policymakers.
Analysts said as the central bank raised the borrowing costs this month, it will likely take a pause in July and there might be one more rate hike this year.
Gov. Kim earlier said that the BOK will try to raise the interest rate carefully because a steep rate increase could dent the economy.
The BOK put its 2011 inflation projection at 3.9 percent while the government is seeking to contain inflation at around 3 percent. Analysts say it will be hard for the government to attain such a goal due to the mounting inflation pressure.
