BOK freezes key rate at 2.75 percent

The country’s central bank left the key rate untouched on Friday, reflecting a hopeful outlook on the nation’s economy based on the brisk export growth in October.

As widely expected, the Bank of Korea’s Monetary Policy Committee announced that it would keep the rate frozen at 2.75 percent for November to keep tabs on the impact of the quarter-point rate cut in the previous month.

The economic downturn slowed in Korea as exports, consumption and investment improved, said BOK Governor Kim Choong-soo.

However, he said that the economy was unlikely to make a fast recovery for a considerable time due mostly to prolonged euro area fiscal crisis and the delay in recovery of the global economy.

Further, the so-called fiscal cliff in the U.S. ― indicating the effect of a series of U.S. legislation that may result in tax increases and spending cuts to reduce its budget deficit ― will be a significant variable factor for the recovery of the export-oriented Korean economy, according to the BOK head.

“The governmental and opposition parties of the U.S. tend to come to an agreement in the very final stage. But it would be dangerous if a deal is not reached by Christmas,” said Kim at a press conference on Friday.

Analysts expect that the key interest rate will remain unchanged for quite some time unless the economy shows an unexpected downturn.

“Rate cuts are unlikely through 2013, as the economic growth and inflation will likely rise modestly from this year’s very low base rate,” said Kwon Young-sun, an economist at Nomura International in Hong Kong, in a report.

The BOK committee said in a statement that the pace of global economic recovery is expected to be very modest and the downside risks to growth to be large, owing chiefly to the euro area fiscal crisis and to the fiscal consolidation issue in the U.S.

It also pointed out in a report that October’s consumer price inflation and core inflation excluding the prices of agricultural and petroleum products continued to run at similarly low levels as in the previous month, at 2.1 percent and 1.5 percent, respectively.

In terms of inflation, the committee forecast that it will not deviate substantially from its current level for the time being, owing primarily to the easing of demand-side pressures. As for housing prices, those in Seoul and its surrounding areas continued their downtrend and those in the rest of the country rose slightly. 


By Park Min-young
(claire@heraldcorp.com)