SEOUL, Mar 14: South Korea’s central bank held interest rates steady as the new government prepared stimulus measures to energise an economy hit by a slow global recovery and weak corporate and consumer spending.
The export-reliant economy, Asia’s fourth largest, faces predominant downside risks such as fiscal consolidation in the United States and the yen’s precipitous decline, but inflation will remain tame for a considerable period, the Bank of Korea said.
It held the base rate steady at 2.75 percent for a fifth consecutive month on Thursday, as widely expected, but the decision was split, Governor Kim Choong-soo told reporters, without providing more details on the voting.
Kim may have signalled an intention to coordinate rate cuts with proposed government stimulus measures, saying: ‘Policies are helpful when in harmony, and it is important to choose a good policy mix,’ without referring specifically to government stimulus steps.
Many analysts expect the Bank of Korea to cut the rate as early as next month when the government’s stimulus steps will probably have been prepared, a view taken by a senior presidential aide speaking on Wednesday.
Thirteen out of 24 analysts in a poll conducted by Reuters prior to the decision saw at least one more rate cut this year, while the consensus was for a rate hold on Thursday.
GOVERNMENT STIMULUS DUE SOON
‘I would say when the new government settles down and starts laying out stimulus policies, the Bank of Korea could cut rates,’ said Lee Min-koo, an economist at Eugene Investment and Securities in Seoul, forecasting a cut for the second quarter.
The front-month futures on three-year treasury bonds were unchanged from the previous close by 0405 GMT, while the won fell sharply by 0.8 percent against the dollar as currency traders bet on an interest rate cut ahead.
A senior presidential aide told Reuters on Wednesday the government would unveil an economic stimulus package in a few weeks, while the finance minister designate made remarks indicating he saw the need for more central bank policy easing.
President Park Geun-hye, who took office late last month but has yet to form her government due to a political standoff, has promised to revive the economy by boosting domestic service industries and creating more well-paid jobs.
The Bank of Korea cut the policy rate by 25 basis points each in July and October last year after raises by a total of 125 basis points between July 2010 and June 2011.
The central bank’s latest forecast is for South Korea’s economic growth to pick up to 2.8 percent this year from an estimated 2.0 percent rise in 2012, but it would be below the global economy’s 3.4 percent gain seen by the central bank.
(AGENCIES)
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