new normal for bank of korea
Last Updated : GMT 08:21:11
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New normal for Bank of Korea

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Arab Today, arab today New normal for Bank of Korea

Seoul - Xinhua

Mohamed El-Erian, CEO and co-chief investment officer at PIMCO, coined the concept and phrase \"new normal\" to describe the post-financial-crisis world of muted growth. In the new normal world, the economy grew at a slower speed, resulting in lower investment returns. South Korea has already entered the second new normal phase. The first new normal started after the 1997 Asian financial crisis, and the main catalyst for the second one was the 2008 global financial crisis. \"The U.S. economy is in new normal. Many countries have experienced economic slowdown after the global financial crisis. South Korean economy has experienced slowdown. The economy may enter a completely different phase,\" Tim Condon, head of Asia research at ING in Singapore, told Xinhua on Friday. \"New neutral\"policy interest rate for the Bank of Korea (BOK) was required by the new normal world.\"We estimate the \'old neutral\' base rate at 4.3 percent, its average during the post- Asian-crisis to pre-financial-crisis. The \'new neutral\' base rate should decline by something like the slowdown in nominal GDP growth. Based on these, 3.25 percent is a reasonable estimate of the new neutral,\"said Condon. The BOK left its policy rate unchanged at 3.25 percent last month, keeping its rate freeze stance for the fifth straight month. MUTED GROWTH The first new normal for South Korea began after the 1997 Asian financial crisis. The country\'s nominal GDP growth dropped to 6.9 percent in the after-crisis period, or between 2000 and the second quarter of 2008, from 16 percent in the pre-crisis period, or between 1982 to the second quarter of 1997, according to ING. The 2008 global financial crisis triggered the second one where South Korea\'s economic growth was estimated to slow further. Nomura International projected the country\'s potential GDP growth to slow from an average of 4.5 percent between 2001 and 2010 to 3. 5 percent during the period of 2011 to 2020. Considering the country\'s entrance into the second new normal, many think tanks predicted a slower growth next year. Samsung Economic Research Institute (SERI) expected the country to grow 3. 6 percent in 2012, down from the estimated 4 percent expansion in 2011. The Organization for Economic Cooperation and Development ( OECD) lowered the nation\'s growth outlook for 2012 to 3.8 percent from 4.5 percent projected six months ago. Consumer price inflation was expected to be contained amid slower growth.\"From the supply side, global prices for grain, livestock, oil and raw materials are expected to decline amid weak demand caused by global economic slowdown. From the demand side, slower economic growth at home will contribute to reduced inflationary pressure,\" Chung Jin-young, a research fellow at SERI, told Xinhua. Chung said the BOK would not raise its policy rate until the first half of 2012 due to lingering concerns over large household debts and external uncertainties, predicting that the rate cut would not be made as the easier monetary policy may boost inflation expectations.  

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