(2nd LD) Bank of Korea freezes key rate for 4th month

(ATTN: RECASTS lead; UPDATES with more details and remarks by BOK Gov. in paras 3-6,
12-15; TRIMS throughout)
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, saying that a free-fall in the local
economy has stopped but economic uncertainty still persists.

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, as widely expected. The BOK
made six consecutive rate cuts totaling 3.25 percentage points between October
and February in a bid to bolster the slumping economy.
"A sharp economic downturn has almost stopped thanks to aggressive fiscal and
monetary policies," BOK Gov. Lee Seong-tae, told a press conference. "But it is
premature to say with confidence that the local economy will continue improving
after the second half."
A statement released after the meeting said that the economy still faces downside
risks due to rising commodity costs and slumps in major advanced nations.
Against this backdrop, the BOK said it will maintain its accommodative monetary
policy for the time being and focus its future policy on bolstering growth and
stabilizing the financial markets.
"Upside risks to inflation inched up, but the bank will maintain its
accommodative stance," Lee said.
The rate freeze, as widely forecast, comes as some economic indicators are
backing optimism that the Korean economy may be approaching 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 talk about a rate hike, saying that 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 that the BOK will stand pat on the rate throughout this
year, but some argued that the bank may hike the rate as early as the fourth
quarter.
"Only after overall economic activities like investment and exports improve would
a rate hike be possible. In the fourth quarter, the BOK may raise the rate," said
Jeon Hyo-chan, an economist at Samsung Economic Research Institute.
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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