ID :
194941
Thu, 07/14/2011 - 06:13
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Shortlink :
https://oananews.org//node/194941
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BOK freezes key rate at 3.25 pct
(LEAD) BOK freezes key rate at 3.25 pct
(ATTN: REWRITES lead; UPDATES with BOK statement and more info in paras 2-5,7)
By Kim Soo-yeon
SEOUL, July 14 (Yonhap) -- South Korea's central bank froze the key interest rate on Thursday, following a rate hike in June, as external economic uncertainty like the eurozone debt crisis persists despite inflation risks.
Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers held steady the benchmark seven-day repo rate, dubbed the base rate, at 3.25 percent for July, as widely expected.
In June, the BOK surprised the market by delivering a rate hike earlier than expected, citing growing inflationary pressure spurred by the economic recovery. The bank raised the borrowing costs by a combined 1.25 percentage point since July last year.
The BOK said Europe's fiscal problems and the chance of an economic slowdown in the U.S. could serve as downside risks to the Korean economy while inflation will continue to maintain a strong upward trend.
"The local economy is expected to keep solid growth momentum on exports, but the possible spread of the eurozone debt crisis and the weakening recovery in major economies will act as downside risk factors," the central bank said in a statement.
Analysts said the BOK left the rate unchanged for July in a bid to gauge the impact of a June rate increase on the economy and as economic uncertainty like Europe's debt crisis lingers.
"External economic uncertainty has heightened as the eurozone debt crisis and concerns about the U.S. economic slowdown persist. On the domestic front, household debt problems still weigh on the economy. In this situation, a back-to-back rate hike could be burdensome," said Lee Sung-kwon, a senior economist at Shinhan Investment Corp.
Global financial markets have been gripped by fears that Greece's sovereign crisis might spread to Italy and Spain. Concerns about the pace of the U.S. economy's recovery persist as Federal Reserve Chairman Ben Bernanke said Wednesday the Fed is prepared to ease monetary policy further if necessary, hinting at the possibility of an additional injection of liquidity.
European Union leaders did not rule out the chance of a selective default by Greece, and Moody's Investors Service downgraded the credit ratings of Portugal and Ireland to junk.
In addition, South Korea is grappling with snowballing household debt, which surpassed the 800 trillion won (US$748.8 billion) mark on the back of a long streak of low rates and the economic recovery. Last month, the government unveiled a set of measures to curb growing household debt by tightening banks' loan-to-deposit ratios and mending banks' lending practices.
But the rate freeze also came despite concerns about inflation, which topped the upper ceiling of the BOK's 2-4 percent inflation target band for the sixth consecutive month in June.
South Korea's consumer prices rose 4.4 percent in June from a year earlier, up from a 4.1 percent on-year expansion in May.
Core inflation, which excludes volatile oil and food costs, grew 3.7 percent on-year in June, the fastest expansion in over two years, accelerating from 3.5 percent in May. Rising core inflation indicates that demand-pull inflationary pressure is growing.
Finance Minister Bahk Jae-wan has said that South Korea should take "all possible policy measures" to tame inflation as high prices could undermine the economic recovery and hurt people's livelihoods.
Last month, the government cut its growth outlook for this year to 4.5 percent while revising up its projection of 2011 inflation to 4 percent from an earlier 3 percent. The BOK's inflation forecast stood at 3.9 percent and it will unveil its revised economic outlook on Friday.
Experts said as the BOK took a pause this month, it may resume its tightening cycle as early as August after gauging external economic uncertainty like Europe's debt crisis and a sputtering U.S. recovery.
"The BOK is likely to freeze the rate for July. But as there are high chances that inflation will likely stay high in the second half and core inflation is quickly rising, efforts to stabilize prices are all the more needed," said Lee Sang-jae, an economist at Hyundai Securities Co. "The BOK may raise the rate twice more to 3.75 percent by the end of this year."
(ATTN: REWRITES lead; UPDATES with BOK statement and more info in paras 2-5,7)
By Kim Soo-yeon
SEOUL, July 14 (Yonhap) -- South Korea's central bank froze the key interest rate on Thursday, following a rate hike in June, as external economic uncertainty like the eurozone debt crisis persists despite inflation risks.
Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers held steady the benchmark seven-day repo rate, dubbed the base rate, at 3.25 percent for July, as widely expected.
In June, the BOK surprised the market by delivering a rate hike earlier than expected, citing growing inflationary pressure spurred by the economic recovery. The bank raised the borrowing costs by a combined 1.25 percentage point since July last year.
The BOK said Europe's fiscal problems and the chance of an economic slowdown in the U.S. could serve as downside risks to the Korean economy while inflation will continue to maintain a strong upward trend.
"The local economy is expected to keep solid growth momentum on exports, but the possible spread of the eurozone debt crisis and the weakening recovery in major economies will act as downside risk factors," the central bank said in a statement.
Analysts said the BOK left the rate unchanged for July in a bid to gauge the impact of a June rate increase on the economy and as economic uncertainty like Europe's debt crisis lingers.
"External economic uncertainty has heightened as the eurozone debt crisis and concerns about the U.S. economic slowdown persist. On the domestic front, household debt problems still weigh on the economy. In this situation, a back-to-back rate hike could be burdensome," said Lee Sung-kwon, a senior economist at Shinhan Investment Corp.
Global financial markets have been gripped by fears that Greece's sovereign crisis might spread to Italy and Spain. Concerns about the pace of the U.S. economy's recovery persist as Federal Reserve Chairman Ben Bernanke said Wednesday the Fed is prepared to ease monetary policy further if necessary, hinting at the possibility of an additional injection of liquidity.
European Union leaders did not rule out the chance of a selective default by Greece, and Moody's Investors Service downgraded the credit ratings of Portugal and Ireland to junk.
In addition, South Korea is grappling with snowballing household debt, which surpassed the 800 trillion won (US$748.8 billion) mark on the back of a long streak of low rates and the economic recovery. Last month, the government unveiled a set of measures to curb growing household debt by tightening banks' loan-to-deposit ratios and mending banks' lending practices.
But the rate freeze also came despite concerns about inflation, which topped the upper ceiling of the BOK's 2-4 percent inflation target band for the sixth consecutive month in June.
South Korea's consumer prices rose 4.4 percent in June from a year earlier, up from a 4.1 percent on-year expansion in May.
Core inflation, which excludes volatile oil and food costs, grew 3.7 percent on-year in June, the fastest expansion in over two years, accelerating from 3.5 percent in May. Rising core inflation indicates that demand-pull inflationary pressure is growing.
Finance Minister Bahk Jae-wan has said that South Korea should take "all possible policy measures" to tame inflation as high prices could undermine the economic recovery and hurt people's livelihoods.
Last month, the government cut its growth outlook for this year to 4.5 percent while revising up its projection of 2011 inflation to 4 percent from an earlier 3 percent. The BOK's inflation forecast stood at 3.9 percent and it will unveil its revised economic outlook on Friday.
Experts said as the BOK took a pause this month, it may resume its tightening cycle as early as August after gauging external economic uncertainty like Europe's debt crisis and a sputtering U.S. recovery.
"The BOK is likely to freeze the rate for July. But as there are high chances that inflation will likely stay high in the second half and core inflation is quickly rising, efforts to stabilize prices are all the more needed," said Lee Sang-jae, an economist at Hyundai Securities Co. "The BOK may raise the rate twice more to 3.75 percent by the end of this year."
