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October 10, 2009

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S. Korea leaves key rate at record low

SOUTH Korea's central bank left its key interest rate at a record low yesterday for an eighth straight month amid speculation that a hike could come as early as November.

The Bank of Korea announced that its monetary policy committee decided to keep the benchmark seven-day repurchase rate at 2 percent at a monthly policy meeting.

The decision was in line with the expectations of economists.

The central bank had slashed the rate six times since a year ago to help battle the effects of the global financial crisis. Declines in worldwide consumer demand as the global recession unfolded hit demand for South Korean exports.

Asia's fourth-largest economy, however, has now fought back from its worst slowdown since the 1997-98 Asian financial crisis to record two straight quarters of growth on a rebound in exports and production.

The recovery, a rise in housing prices and reported comments by central bank Governor Lee Seong-tae perceived as suggesting a rate increase have led to speculation a hike could come sooner rather than later.

The bank's monetary policy committee, however, in a statement on the decision stuck to similar wording used last month, saying it would keep in place its "accommodative policy stance for the time being." It cited lingering "uncertainty as to the economic growth path."

A rate hike on Tuesday by Australia's central bank has also fueled talk of a similar move in South Korea. The Reserve Bank of Australia raised its cash rate to 3.25 percent from a 49-year low of 3 percent after having slashed it a total of 4.25 percentage points to help deal with the crisis. That was the first hike by a major central bank since the financial crisis worsened last fall.


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