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BOK freezes key rate for 9th straight month for Feb.

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Published : 2014-02-13 10:26
Updated : 2014-02-13 11:23

South Korea's central bank froze the key interest rate for the ninth consecutive month on Thursday amid caution against emerging market unrest sparked by the U.S. monetary stimulus cut.

Bank of Korea Gov. Kim Choong-soo and his six fellow policymakers held the benchmark seven-day repo rate, called the base rate, at 2.5 percent, as widely expected.

The BOK said that it will pay close attention to developments in external risk factors such as shifts in major countries' monetary policies and market unrest in some emerging economies.

It added that consumer prices are likely to stay low for the time being on stable raw material costs but will gradually pick up down the road.

"Signs of China's slowdown and emerging market jitters are raising cautions in the local financial markets," said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities Co. "But it seems that there was no motive for the BOK to change its rate policy course as there is an expectation for a recovery in advanced economies and emerging market turmoil is not seen as being contagious."

Jitters in emerging markets resurfaced as the Federal Reserve recently decided again to reduce its monthly asset purchases, now down to $65 billion, citing the improvement in the U.S. economy.

In December, the Fed decided to start tapering the quantitative easing (QE) from $85 billion to $75 billion a month.

Turkey and India reacted by raising their policy rates in a bid to stem sharp weakness in their currencies, sparked by the Fed's QE tapering.

On the domestic front, the Korean economy is on the recovery track while inflationary pressure remains low.

The BOK last month retained its 2014 growth forecast for the Korean economy at 3.8 percent while it lowered the year's inflation outlook to 2.3 percent amid stable agricultural prices.

Consumer prices grew 1.1 percent on-year in January, unchanged from the previous month. They ran below the BOK's inflation target band for the 20th straight month in January.

Most analysts forecast that the central bank would hold the benchmark rate before raising it later this year or in early 2015.

Five out of 15 analysts in a poll conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, said that the BOK is likely to raise the borrowing costs in the fourth quarter of this year. Eight experts anticipated that the central bank will likely leave the key rate unchanged throughout this year.

The BOK lowered the borrowing costs in May 2012 after cutting them in July and October 2011 to support the economic recovery. (Yonhap)

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