Published : 2013-09-12 10:27
Updated : 2013-09-12 10:27
South Korea's central bank stood pat on the key interest rate for the fourth straight month on Thursday amid speculation that the U.S. Federal Reserve may taper its monetary stimulus starting this month.
Bank of Korea (BOK) Gov. Kim Choong-soo and his six fellow policymakers froze the benchmark seven-day repo rate, dubbed the base rate, at 2.5 percent, as widely expected.
The decision came as all eyes are on whether the Fed will decide to begin cutting the US$85 billion monthly bond purchases at its policy meeting slated for Sept. 17-18.
"Amid growing uncertainty over a U.S. monetary stimulus cut, there is no reason for the BOK to change its policy course," said Kong Dong-rak, a fixed-income analyst at Hanwha Investment & Securities Co.
The Fed's potential action would be an expression of confidence for the U.S. recovery, but it is sparking concerns about the acceleration of foreign capital flights from emerging countries.
Emerging markets including India and Indonesia are struggling to curb cross-border capital outflows and sharp currency depreciation, spurred by the Fed's tapering speculation.
South Korea is differentiating itself from other crisis-prone emerging countries with its currency having risen about 3.8 percent against the U.S. dollar since June. But the government remains wary of possible capital outflows as short-term shock from the Fed's future actions on the markets cannot be ruled out.
On home turf, the South Korean economy is widely viewed as
staying on the moderate recovery trend.
Asia's fourth-largest economy grew 1.1 percent on-quarter in the second quarter on fiscal and monetary stimulus, the fastest gain in more than two years.
The government has increased fiscal spending and unveiled measures to boost the slumping property market. The BOK made the first rate cut in seven months in May.
Korea's inflation pressure remains benign, diminishing the need to change the policy course. The consumer prices grew 1.3 percent on-year in August, staying in the 1 percent range for the 10th straight month. The BOK's 2013-2015 inflation target band was set at the range of 2.5-3.5 percent.
Analysts said that the BOK is likely to freeze the key rate for the remainder of this year as the economic recovery is reducing the need to cut the policy rate and as subdued inflation does not warrant an imminent rate hike.
More experts, however, said that the central bank's next move would be a rate hike, which may come late next year. The BOK forecast the local economy to grow 2.8 percent this year and 4 percent in 2014. (Yonhap News)