Published : 2013-01-11 10:14
Updated : 2013-01-11 10:14
South Korea's central bank froze the key interest rate for the third straight month on Friday amid signs of some improvements in the global economy.
Bank of Korea (BOK) Gov. Kim Choong-soo and his six fellow policymakers held the benchmark 7-day repo rate steady at 2.75 percent for January. The central bank cut the rate in July and October to prop up the slowing economy.
The decision was widely anticipated as 15 out of 21 analysts forecast the rate freeze in a survey by Yonhap Infomax, the financial news arm of Yonhap News Agency.
Ahead of the January policy meeting, the first one since a new president was elected in December, some market players forecast a rate cut as a way to slow the Korean currency's relentless ascent to the dollar and ease households' debt-servicing burdens.
But more analysts said that the BOK seemed to refrain from cutting the rate as grave concerns about the U.S. fiscal cliff and the eurozone debt crisis have eased and some economic data at home and abroad showed improvements.
"Current economic conditions are not weak enough to warrant a rate cut this month as the global economy shows some signs of stabilizing," said Lee Sang-jae, a senior economist at Hyundai Securities Co.
"As the rate policy has far-reaching impacts on the economy, it would not be proper for the BOK to use the card of a rate cut solely for slowing the won's ascent."
The BOK's move follows the rate freeze made by the European Central Bank and the Bank of England on Thursday, as an indication that the global economic outlook would not be that bleak.
A set of economic data in Korea present mixed signals about the economic recovery, but Gov. Kim said last month that the Korean economy may not deteriorate further.
The country's industrial output grew at a faster pace than expected in November while Korea's exports unexpectedly posted an on-year drop in December.
Analysts said that the recovery seems to be only moderate as the Korean economy is likely to grow by some 3 percent this year, running below its long-term potential growth rate of around 3.8 percent.
They also added that the rate freeze came as the central bank may need the time to gauge what stimulus measures the new government will implement after taking office in late February.
The incoming government led by President-elect Park Geun-hye is widely expected to draw up stimulus measures. The government decided to frontload about 60 percent of its fiscal spending in the first half of this year.
More analysts said that though the BOK stood pat on the rate this month, the central bank may reduce the borrowing costs once in the first half of this year to prop up the growth.
"The possibility of a rate cut is open in the first quarter to prevent side effects of a long streak of low growth," said Kim Yoon-gee, a senior economist at the Daishin Economic Research Institute.
The BOK said that it plans to focus its 2013 monetary policy on supporting the economic recovery by closely watching risk factors at home and abroad.
The central bank said that it will make efforts to prevent the continuation of low growth from eroding the country's growth potential while maintaining price stability. (Yonhap News)