Bank of Korea freezes key rate for 5th month

(ATTN: ADDS statement by BOK in paras 3-5)
By Kim Soo-yeon
SEOUL, July 9 (Yonhap) -- South Korea's central bank froze its key interest rate
for the fifth straight month on Thursday as signs of economic improvement were
emerging amid easing inflationary pressure.
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 downturn is easing as production and demand are improving overall. The local
economy is expected to continue its improvement, but the growth outlook remains
uncertain as raw material prices are rising and major economies are in slump,"
the BOK said in a statement.
The central bank said consumer prices will likely grow slowly for the time being
due to slumping demand, but rising oil prices would increase upward pressure on
inflation.
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.
The rate freeze came as some economic data are underpinning rising optimism that
Asia's fourth-largest economy may be bottoming out, although other readings --
including those on the local job market -- still remain sluggish, leading
policymakers to be cautious about the pace of economic recovery.
Last month, BOK Gov. Lee Seong-tae said that a free-fall in the Korean economy
has stopped.
South Korea's industrial output posted its fifth consecutive monthly expansion in
May. Exports declined a less-than-expected 11.3 percent in June from a year
earlier, leading the country's trade surplus to reach a record US$7.4 billion.
The finance ministry said in late June that the Korean economy is expected to
shrink 1.5 percent this year, revising up its earlier forecast of a 2 percent
contraction on indications that the downturn is abating thanks to stimulus
packages. The BOK forecast earlier that the local economy will decline 2.4
percent in 2009.
Experts say that although signs of an economic recovery are increasing, it is too
early for the central bank to move away from its monetary easing policy, given
lingering economic uncertainty.
The government has reiterated that it will stick to its "expansionary" economic
policy, and that it is premature to say that the economy is making a full
recovery.
South Korea's consumer prices rose 2 percent in June from a year earlier, the
slowest pace in 22 months, alleviating concerns that inflation may hamper an
economic recovery and spark asset bubbles.
sooyeon@yna.co.kr
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