IMF says Korea has little room to cut rate

Korea’s central bank has limited leeway to cut its key interest rate as Asia’s fourth-largest economy remains dogged by high inflation expectations, the International Monetary Fund said Wednesday.

The IMF said in a report that given sluggish growth, high unemployment and downside risks, more monetary easing should be considered for some advanced economies, with the possible exception of Canada and Korea.

The international organization said that for South Korea, “still-elevated inflation expectations limit the room to ease.”

The report came as the global economy is cooling down, beset by persisting concerns about the eurozone debt crisis, raising prospects for rate cuts by some advanced countries. The report, titled the umbrella report for the G20 mutual assessment process, was unveiled on June 20.

The Bank of Korea froze the key interest rate at 3.25 percent for the 12th consecutive month in June on concerns about the eurozone debt crisis. Its next rate review is slated for July 12.

Many analysts said that the European Central Bank is likely to cut its policy rate this week to support the weakening growth in the eurozone. Some economists said that the BOK may slash the key rate this year, citing slowing economic growth and easing inflation pressure.

Korea’s annual inflation growth hit a 32-month low of 2.2 percent in June, marking the fourth straight month that headline inflation remained in the 2-percent range. The BOK aims to keep the median consumer inflation target at 3 percent with a margin of plus or minus 1 percentage point.

But the country’s inflation expectation still remained elevated as Korean consumers forecast last month that inflation would reach an annual average of 3.7 percent over the next 12 months. 

(Yonhap News)