Bank of Korea to freeze key rate for June: poll

By Kim Soo-yeon
SEOUL, June 8 (Yonhap) -- South Korea's central bank is widely expected to leave
its key interest rate unchanged for a fourth straight month this week amid signs
that a sharp decline in the economy has moderated, a poll showed Monday.

All economists at 20 financial institutions predicted that the Bank of Korea
(BOK) will freeze the benchmark seven-day repo rate at a record low of 2 percent
on Thursday, according to the poll by Yonhap Infomax, the financial news arm of
Yonhap News Agency.
"Although hopes for an economic recovery are rising, domestic demand remained
sluggish and economic uncertainty at home and abroad is expected to dent
exports," said Moon Byung-sik, an economist at Daishin Securities Co. "The BOK is
likely to continue its monetary easing steps."
The BOK made six consecutive rate cuts totaling 3.25 percentage points between
October and February in a bid to bolster the slumping economy. It stood pat on
the rate for a third month in May, saying that a sharp decline in economic
activity has markedly moderated.
Some economic indicators are backing up optimism that the Korean economy may
approach its bottom.
Asia's fourth-largest economy grew 0.1 percent in the first quarter from three
months earlier, averting a technical recession, or two straight quarters of
contraction. The Korean economy shrank 5.1 percent in the last quarter of 2008.
In April, the country's industrial output grew 2.6 percent on-month, maintaining
its month-on-month expansion for the fourth straight month. Business and consumer
sentiment has climbed on hopes of an economic recovery.
But some data on the real economy has showed activity still remains sluggish,
reinforcing cautious views by the government and the BOK, which have said it is
premature to say that the local economy is bottoming out and that the country
will likely recover very slowly.
Although the nation's jobless rate fell to 3.8 percent in April from 4 percent in
March, the job market remained stagnant. The Korean currency's recent ascent to
the U.S. dollar is also feared to dent exports, which account for over 60 percent
of the local economy.
Experts have said that despite controversy over rising liquidity, it is not yet
time to talk about a rate hike as consumer prices continued to grow slowly and
money is not fully flowing in the real economy due to lingering credit risks.
The country's consumer prices rose 2.7 percent on-year in May, the slowest pace
in 20 months.
Economists say the BOK seems to have wrapped up its monetary easing cycle this
year, saying that an additional rate cut might not come if the economy does not
abruptly deteriorate.
"If the economy does not suffer additional deterioration, the BOK is not likely
cut the rate this year. But it is necessary to closely watch the depth of
liquidity adjustment to detect a change in the monetary stance," said Shin
Dong-su, an economist at NH Investment & Securities Co.
The BOK predicted that the Korean economy will contract 2.4 percent this year,
the worst performance in 11 years, stung by falling exports and weakening
domestic demand.
sooyeon@yna.co.kr
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