Arab Today, arab today south korea freezes policy rate
Last Updated : GMT 05:25:49
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South Korea freezes policy rate

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Arab Today, arab today South Korea freezes policy rate

Seoul - XINHUA

South Korea's central bank froze key interest rate for 11 months in a row on Thursday in line with market expectations. Bank of Korea governor Lee Ju-yeol, who convened the first monetary policy meetingsince he took office on April 1, decided to keep the seven-day repurchase rate on hold at 2.5 percent along with six other monetary policy board members unanimously. The policy rate has been anchored at the level since May 2013 when the central bank lowered borrowing costs by 25 basis points amid mixed signals from economic indicators at home and abroad. Lee was reluctant to send a clear signal on the policy direction and took a relatively neutral stance on growth and inflation. Lee said the growth outlook was revised upward to 4 percent for 2014 in line with potential growth, stressing that growth was a major consideration of BOK in managing the monetary policy. Lee said the 2014 consumer price inflation outlook was revised down to 2.1 percent from an earlier estimate of 2.3 percent. Lee said the inflation would accelerate to the mid-2 percent level in the second half of this year, but he noted the central bank's monetary policy should be in harmony with the fiscal policy of the Finance Ministry, which may want to boost the economy ahead of the June 4 local elections. The country's consumer prices rose 1.3 percent in March from a year earlier, higher than a 1 percent gain in the previous month. The consumer price inflation stayed below the BOK's mid-term inflation target band of 2.5-3.5 percent for 22 months in a row. Core consumer prices, which exclude agricultural and petroleum products, increased 2.1 percent on year in March, up from a 1.7 percent rise a month earlier. Market watchers expected the BOK to raise the benchmark interest rate as early as in the fourth quarter of this year as the U.S. Federal Reserve kept tapering its quantitative easing and hinted at rate hike in the first half of next year. Kwon Young-sun, a senior economist at Nomura in Hong Kong, said in a report that the BOK will raise interest rate by 25 basis points to 2.75 percent in December 2014 given his view that the headline inflation will surge to 3.2 percent in the fourth quarter. Meanwhile, economic conditions at home and abroad showed a mixed picture, giving no ground for the BOK to change the policy rate this month. Economic data in the United States indicated that the world's largest economy was on the mend, but fell short of market expectations. U.S. non-farm payroll growth, the closely watched data, stood at 192,000 in March, slightly below market expectations. External uncertainties remained such as economic slowdown in China and tension in Eastern Europe. On the domestic front, economic data sent mixed signals. South Korea created 649,000 jobs in March, continuing its recovery trend. But the job growth was slower than 835,000 in February and 705,000 in January. Output in the mining and manufacturing sectors fell 1.8 percent in February from a month earlier, and production in the service industry reduced 0.4 percent. Retail sales shrank 3.2 percent, and facility investment slid 0.3 percent on weak demand in the shipbuilding and auto industries. Exports, which account for about half of the economy, expanded 5.2 percent from a year earlier to 49.76 billion U.S. dollars in March, the largest except for the all-time high of 50.48 billion dollars tallied in October last year. The economy kept its overall recovery trend in January and February, but it made a slight adjustment in February due to one- off factors, the Finance Ministry said in its monthly economic report called Green Book.

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