Bank of Korea Keeps Interest Rates at Record Low
South Korea’s central bank left its key interest rate at a record low for an 11th straight month Friday amid government concern that a solidfying economic recovery could be derailed by higher borrowing costs.
The Bank of Korea’s widely expected decision to keep its benchmark seven-day repurchase rate at 2 percent came at a monthly policy meeting.
South Korea’s finance ministry, which has been cool to monetary tightening, exercised its right to attend the policy meeting for the first time in a decade, sending Vice Minister Hur Kyung-wook in a move seen as pressure on the bank to stand pat.
The Ministry of Strategy and Finance had said in a statement Thursday that it respects the BOK’s independence but emphasized “the need for policy coordination between the government and central bank during times of economic crisis.”
The bank slashed the benchmark rate six times starting in October 2008 to help battle the impact of the global slowdown, but has left it unchanged since last March as the economy stabilized and began to recover.
Asia’s fourth-largest economy has recorded three straight quarters of growth largely on a rebound in exports and manufacturing after contracting in the final three months of 2008.
In a statement Friday, the bank’s monetary policy committee said South Korea’s recovery is expected to continue, though cited “the risk of delay in a full-fledged recovery of the major advanced economies” as a concern.
The committee added it “will maintain the accommodative policy stance for the time being in such a way as to help sustain the trend of recovery in economic activity.”
South Korea’s economy grew 3.2 percent in the third quarter, its best performance in more than seven years, compounding optimism for strong growth in 2010.
The central bank said in a report last month it expects the economy to grow 4.6 percent this year, compared with an expected 0.2 percent expansion in 2009, and grow a further 4.8 percent in 2011, bolstered by a global recovery and better sentiment among consumers and investors.
Kwon Goohoon, economist at Goldman Sachs in Seoul, said the result of the policy meeting reflected the government’s position against any hasty increase to interest rates.
Goldman Sachs still expects a quarter percentage point rate hike during the first three months of this year, most likely in February, but there is increasing risk that such a move might not occur during the first half “given a strong position of the government on the timing of exit strategies” illustrated by its participation in the policy meeting, he said in a report.
Central banks worldwide including the U.S. Federal Reserve slashed interest rates to cope with the global financial crisis and economic downturn, though few have dared raise borrowing costs for fear of snuffing out budding recoveries.
In the Asia-Pacific region, only the Reserve Bank of Australia has so far been confident enough, lifting its cash rate three times late last year to 3.75 percent.
The Bank of England left interest rates at a record low of 0.5 percent on Thursday and announced no change in its monetary stimulus program as it looks for clearer signs on the health of the economy.
1/7/2010 10:58 PM KELLY OLSEN, AP Business Writer SEOUL, South Korea