Bank of Korea freezes key rate for 4th month

By Kim Soo-yeon
SEOUL, June 11 (Yonhap) -- South Korea's central bank froze its key interest rate
for the fourth straight month on Thursday amid growing signs that a sharp
economic downturn is moderating.

In a monthly policy meeting, the Bank of Korea (BOK) left the benchmark seven-day
repo rate unchanged at a record low of 2 percent. The BOK made six consecutive
rate cuts totaling 3.25 percentage points between October and February in a bid
to bolster the slumping economy.
The decision is in line with a forecast by all economists at 20 financial
institutions polled 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.
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 compared with March,
marking the fourth month-on-month expansion in a row. Business and consumer
sentiments have climbed on hopes for an economic recovery.
But some data show economic activity remains sluggish, reinforcing cautious views
by the government and the BOK. They have said it is premature to say that the
local economy is bottoming out, and predict it will likely recover very slowly.
South Korea's unemployment rate remained unchanged at 3.8 percent in May, but job
loss accelerated at the fastest pace in more than a decade amid the slowdown. A
total of 219,000 workers were eliminated from payrolls last month, compared with
a year earlier, the steepest decline since March 1999.
Experts said that despite a controversy over rising liquidity, it is not the time
to consider a rate hike in the near term. They cited slow consumer price growth
and said money is not yet flowing smoothly 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, amid slumping demand at home and abroad.
Many economists predict the BOK will stand pat on the rate throughout this year,
saying that an additional rate cut is unlikely if the economy does not abruptly
deteriorate.
"If the economy does not suffer additional deterioration, the BOK is not likely
to 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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