ID :
200658
Thu, 08/11/2011 - 12:38
Auther :
Shortlink :
https://oananews.org//node/200658
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Central bank needs to operate monetary piolicy to curb infation
SEOUL, Aug. 11 (Yonhap) -- Amid concerns over rising inflation at home, South Korea's central bank froze the key interest rate on Thursday for the second straight month as the grim global economic outlook, sparked by a U.S. ratings cut and eurozone debt fears, overshadowed persisting inflation woes.
The Bank of Korea (BOK)'s decision to peg the seven-day repo rate steady at 3.25 percent for August was widely expected and understandable as financial markets at home and abroad show extreme uncertainties.
BOK Gov. Kim Choong-soo said the central bank's stance for policy tightening remained intact, but that it will closely assess the impact of external economic risks on the local economy in making any follow-up moves.
What makes us worry is inflation. The central bank's unanimous decision came at a delicate time, when external risks such as concerns about a possbile U.S. double-dip downturn and Europe's debt woes are growing while Korea's inflation has topped the upper limit of the BOK's 2-4 percent target band for the seventh straight month in July.
The government has declared it would place its policy priority on taming inflation rather than pursuing economic growth. With the freeze of the key rate for the second straight month, expectations for higher inflation have grown.
Consumer prices rose 4.7 percent in July from a year earlier, higher than the 4.4 percent growth in June. Core inflation, which excludes volatile oil and food prices, jumped 3.8 percent on-year in July, the fastest gain in 26 months.
Future prospects for inflation are also dim. The producer prices, an indicator for future consumer prices, rose 6.5 percent in July. A prolonged rainy season will also boost vegetable prices while the average 4.7-percent hike in electricity charges this month is expected to press manufacturers with increased production cost.
The BOK raised the key rate every other month from November last year to March. It froze the rate in April and May before raising it in June.
Analysts said heightened external economic uncertainties are raising the chances that the BOK may freeze the key rate or hike it once more, at best, for the remainder of this year.
"If the current developments in the U.S. and Europe are prolonged, consumer spending will slow and commodity prices could fall," an analyst said. "Then Korean policymakers' focus will be placed more on economic growth than inflation. No rate change is expected for the remainder of this year," he added.
That the U.S. Federal Reserve vowed to keep its basic rate near zero at least through mid-2013 makes it difficult for the South Korean monetary policymakers to easily opt for a rate hike.
The central bank has the final responsibility for containing domestic inflation. We hope the BOK should carefully monitor domestic and international market situations and do not miss the optimum timing to normalize rates in order to curb inflation.
The Bank of Korea (BOK)'s decision to peg the seven-day repo rate steady at 3.25 percent for August was widely expected and understandable as financial markets at home and abroad show extreme uncertainties.
BOK Gov. Kim Choong-soo said the central bank's stance for policy tightening remained intact, but that it will closely assess the impact of external economic risks on the local economy in making any follow-up moves.
What makes us worry is inflation. The central bank's unanimous decision came at a delicate time, when external risks such as concerns about a possbile U.S. double-dip downturn and Europe's debt woes are growing while Korea's inflation has topped the upper limit of the BOK's 2-4 percent target band for the seventh straight month in July.
The government has declared it would place its policy priority on taming inflation rather than pursuing economic growth. With the freeze of the key rate for the second straight month, expectations for higher inflation have grown.
Consumer prices rose 4.7 percent in July from a year earlier, higher than the 4.4 percent growth in June. Core inflation, which excludes volatile oil and food prices, jumped 3.8 percent on-year in July, the fastest gain in 26 months.
Future prospects for inflation are also dim. The producer prices, an indicator for future consumer prices, rose 6.5 percent in July. A prolonged rainy season will also boost vegetable prices while the average 4.7-percent hike in electricity charges this month is expected to press manufacturers with increased production cost.
The BOK raised the key rate every other month from November last year to March. It froze the rate in April and May before raising it in June.
Analysts said heightened external economic uncertainties are raising the chances that the BOK may freeze the key rate or hike it once more, at best, for the remainder of this year.
"If the current developments in the U.S. and Europe are prolonged, consumer spending will slow and commodity prices could fall," an analyst said. "Then Korean policymakers' focus will be placed more on economic growth than inflation. No rate change is expected for the remainder of this year," he added.
That the U.S. Federal Reserve vowed to keep its basic rate near zero at least through mid-2013 makes it difficult for the South Korean monetary policymakers to easily opt for a rate hike.
The central bank has the final responsibility for containing domestic inflation. We hope the BOK should carefully monitor domestic and international market situations and do not miss the optimum timing to normalize rates in order to curb inflation.
