South Korea

South Korea keeps rate, seen on hold this year

PUBLISHED : Thursday, 13 June, 2013, 10:14am
UPDATED : Thursday, 13 June, 2013, 10:14am

The Bank of Korea held interest rates steady on Thursday, possibly matching the analysts’ consensus view that the cut in May was the last one for the year because South Korea is on a track to recovery.

The Bank of Korea’s monetary policy committee left its base rate unchanged at 2.50 per cent, a media official said without elaborating.

Seoul markets were little changed from earlier levels as the decision was widely expected.

The 22 analysts surveyed by Reuters before the meeting were unanimous in forecasting the central bank would hold its policy steady after having cut the rate in May for the first time in seven months in a surprise move.

“After the rate cut in May, I don’t see any additional cuts as further economy slowdown doesn’t seem likely in the second or third quarter,” said Jung Sung-wook, a fixed-income analyst at KTB Securities in Seoul.

Asia’s fourth-largest economy is picking up some momentum and the increased volatility in global financial markets means the country, highly vulnerable to cross-border capital flows, had better not make any significant policy change.

Quarterly economic growth sped up to 0.8 per cent in the January-March period from 0.3 per cent in the prior quarter while inflation in May hit a near 14-year low of 1.0 per cent, below the central bank’s 2.5 per cent-3.5 per cent target.

The Ministry of Strategy and Finance is widely expected to upgrade its economic growth forecast for this year from the existing 2.3 per cent estimate when it releases revised economic projections by the end of this month.

The government of President Park Geun-hye had cut this year’s economic growth forecast soon after she took office in late February and later introduced various stimulus measures including a new US$5 billion fiscal spending plan.

South Korea’s economy grew 2.0 per cent last year, the second-worst since the late 1990s Asia financial crisis, but both the finance ministry and the central bank see growth picking up close to 3 per cent this year thanks to stimulus measures.

A central bank research early last month put the optimum pace of growth for South Korea’s economy at between 3.3 per cent and 3.8 per cent, compared with an average of 4.3 per cent seen for the five years before the 2008 global financial crisis.