Back To Top

Liquidity feared to push up inflation

Liquidity provided by Korean financial firms reached almost 2,000 trillion won ($1.79 trillion) in November, central bank data showed Thursday, adding to growing risks of higher inflation.

The country’s liquidity provided by local depository agencies totaled 1,982 trillion won in November, up 7.7 percent from the previous year, according to data from the Bank of Korea.

To fight the global financial turmoil, the central bank supplied ample liquidity to the financial system. Low borrowing costs, driven by the BOK’s aggressive rate cuts, and robust exports added to liquidity, raising concerns about higher inflation.

“Liquidity unleashed during the global financial turmoil remains ample even as (we) are calling in part of it amid the economic recovery,” said an official at the BOK. “Excessive liquidity could lead to raising inflation risks.” BOK Gov. Kim Choong-soo said Wednesday that Korea is facing very difficult situations in taming inflation.

A BOK official said the bank expects consumer inflation in January to accelerate from December’s reading of 3.5 percent, but has no immediate plan to revise upwards its annual target.

“(Consumer prices) will likely maintain an upward trend topping the midpoint of 3 percent in January, following a recent jump in oil prices,” Shin Woon, head of the Bank of Korea’s inflation research team said.

He said the central bank would watch oil price changes for more than two months before releasing its official adjustment of the full-year economic forecasts in April.

“We need to monitor how long the upward trends in such prices will continue,” Shin added, in reference to agricultural produce and industrial goods.

A run-up in meat prices due to outbreaks of foot-and-mouth disease and higher expectations for a U.S. recovery with an extended period of tax cuts had not been reflected in the central bank’s 2011 economic forecasts announced on Dec. 10, 2010, he added.

The Bank of Korea has forecast consumer inflation to accelerate to 3.7 percent in the first half of 2011 and to average 3.5 percent for the year, versus last year’s actual figure of 2.9 percent.

The forecast was based on the assumption that crude oil would be $87 per barrel. NYMEX crude futures for February delivery were quoted Thursday at $90.82 per barrel in Asian trade.

Gov. Kim ratcheted up an inflation warning on Wednesday that inflationary pressures have become a further difficult challenge for a central bank, and sustained economic recovery would add to price pressures.

His comments sent treasury futures prices skidding by their largest daily margin in more than two months.

Record-high grain prices deal another blow to Korea, which relies on corn, soybean and wheat imports to meet most of its demand.

Shin said the time gap of changes in international raw materials prices passing onto domestic prices had shortened.

(From news reports)
MOST POPULAR
LATEST NEWS
leadersclub
subscribe
피터빈트