Business & Finance

Bank of Korea holds base rate as expected

SEOUL : The Bank of Korea (BoK) held rates at 3.25 percent on Thursday for the third successive month, as expected by th

Published September 8, 2011 Updated September 8, 2011 04:50am

3 min

Comments

By Shoaib Ur Rehman

Add BRecorder as a trusted
source on Google

For highlights of governor's news conference:

Reuters survey: 14 out of 16 economists saw no rate move in September, pushing back expectations of the next rate hike. Eight economists of the sixteen saw no more rate rises this year.

Stories on Asia central banks

LEE JUNG-JOON, FIXED INCOME ANALYST, HMC INVESTMENT & SECURITIES

"Although economic downside risks are an obstacle, the governor put more weight on inflation risks and a possible rate hike in the future if external factors can be controlled. The next hike is likely to happen in October at the earliest and another in the first quarter of next year. I don't think the rate will be hiked twice in a row for the rest of this year."

LEE SUNG-KWON, CHIEF ECONOMIST, SHINHAN INVESTMENT CORP

"The decision reflects policymakers now being more concerned about external risk factors involving the US and European economies."

"With interest rates remaining below inflation, the (the BoK) missed the opportunity to control inflation within its target and is now in a bind as growth risks outweigh inflation risks."

"The central bank is likely to keep rates steady or raise them just once in the fourth quarter."

JUNE PARK, SENIOR ECONOMIST, MERITZ SECURITIES

"As the markets expected, the rate was unchanged. I think another hike is likely next month or the following. The governor is expected to say that rates will be normalised, based on his recent comments."

"Considering inflation, it is reasonable to raise rates, but they didn't due to external uncertainties. The BoK missed its chance and should have raised rates two months ago."

PARK HEE-CHAN, ECONOMIST, MIRAE ASSET SECURITIES

"The Bank of Korea is caught in the crossfire between curbing inflation and protecting the economy from a slowdown. Although volatile, one-off factors like the summer floods that drove up food prices contributed to high CPI figures, it nevertheless needs to conduct policy action to control prices in the long run, given that core inflation has been running high."

"Given the increasing inflationary pressures and the fact that other fundamentals are little changed, the central bank will likely maintain its current stance of controlling inflation beyond the short term and we are forecasting one more rate hike within this year."

MARKET REACTION

Bond futures extended gains while the won reversed early rises after the central bank and the governor referred to increased risks to economic growth. Share prices cut gains.

For all South Korean news and data, 3000 Xtra users can double-click

BACKGROUND:

The Bank of Korea cut the policy rate by 325 basis points to a record-low 2 percent between late 2008 and early 2009 and started to raise it in July last year. It has then raised interest rate five times by a total of 125 basis points through June, 2011.

- South Korea's consumer inflation ballooned to a three-year high of 5.3 percent in August and exports grew by 27 percent on the year last month although the growth slowed on a daily basis.

- The central bank on Tuesday revised slightly upwards the second-quarter growth to 0.9 percent on a quarterly basis from the advance estimate of 0.8 percent, as front-loaded government spending on non-residential building projects pulled the construction investment out of a contraction.

Read Comments