S. Korea keeps key interest rate low
By Kelly Olsen |
April 10, 2010, Saturday
|
Print Edition
Print Edition
SOUTH Korea's central bank yesterday left its key interest rate at a record low as its new governor begins weighing when to end an 18-month-old easy money regime implemented to help fight the global financial crisis.
The Bank of Korea announced that it kept the benchmark seven-day repurchase rate at 2 percent at the first monetary policy meeting chaired by Governor Kim Choong-soo, whose four-year term began on April 1. The decision was widely expected.
Kim, a United States-educated economist, and other policy makers must eventually judge when South Korea's economic recovery will be strong enough to bear a hike in borrowing costs from the record low where they have stood for 15 months.
The BOK slashed the key rate six times from October 2008 to battle the global financial meltdown and ensuing economic downturn. The rate has been at the current level since February last year.
Under Kim's predecessor, Lee Seong-tae, the central bank came under pressure from the government to keep the rate low to protect the recovery amid international debate about when stimulus measures -- including low interest rates -- should start to be unwound.
Its monetary policy committee signaled yesterday it has no immediate plans to nudge the rate higher, saying in a statement it will stay on hold "for the time being."
The domestic economic recovery is set to continue and the global economy is improving, the committee said. But it also cited concerns over "latent risk factors present, including the government debt problems in some European countries."
The decision was no surprise, said Kwon Goohoon, Goldman Sachs economist in Seoul. In a research note, he said he was sticking to his view that the BOK will begin a "gradual and moderate tightening" in the second half of this year.
Financial markets were mixed after the decision.
South Korea's key stock index fell 0.5 percent to 1,724.47, slipping off a nearly 22-month high hit on Thursday. The won rose to a nearly 19-month high of 1,118.20 against the US dollar.
The Bank of Korea announced that it kept the benchmark seven-day repurchase rate at 2 percent at the first monetary policy meeting chaired by Governor Kim Choong-soo, whose four-year term began on April 1. The decision was widely expected.
Kim, a United States-educated economist, and other policy makers must eventually judge when South Korea's economic recovery will be strong enough to bear a hike in borrowing costs from the record low where they have stood for 15 months.
The BOK slashed the key rate six times from October 2008 to battle the global financial meltdown and ensuing economic downturn. The rate has been at the current level since February last year.
Under Kim's predecessor, Lee Seong-tae, the central bank came under pressure from the government to keep the rate low to protect the recovery amid international debate about when stimulus measures -- including low interest rates -- should start to be unwound.
Its monetary policy committee signaled yesterday it has no immediate plans to nudge the rate higher, saying in a statement it will stay on hold "for the time being."
The domestic economic recovery is set to continue and the global economy is improving, the committee said. But it also cited concerns over "latent risk factors present, including the government debt problems in some European countries."
The decision was no surprise, said Kwon Goohoon, Goldman Sachs economist in Seoul. In a research note, he said he was sticking to his view that the BOK will begin a "gradual and moderate tightening" in the second half of this year.
Financial markets were mixed after the decision.
South Korea's key stock index fell 0.5 percent to 1,724.47, slipping off a nearly 22-month high hit on Thursday. The won rose to a nearly 19-month high of 1,118.20 against the US dollar.
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