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S.Korea freezes interest rate for 9 months in a row

English.news.cn   2014-02-13 09:47:44

SEOUL, Feb. 13 (Xinhua) -- South Korea's central bank on Thursday kept its policy rate unchanged for the ninth straight month due to uncertainties over the U.S. Federal Reserve's cut- back of its stimulus measure.

Bank of Korea (BOK) Governor Kim Choong-soo and six other monetary policy board members decided to keep the benchmark seven- day repurchase rate on hold at 2.5 percent in February, refraining from altering the policy rate since May last year when it cut the borrowing cost by 25 basis points.

The rate freeze was widely expected amid lingering uncertainties over the Fed's stimulus cut. The Fed scaled down its monthly bond purchases by 10 billion U.S. dollars to 65 billion dollars this month after reducing by the same size in the previous month.

Fed Chairwoman Janet Yellen, who was sworn in on Feb. 3 as head of the U.S. central bank, said in her first testimony in Congress on Tuesday that she would continue with the reduction in the Fed's stimulus as long as the U.S. economic recovery picked up, but she stressed that interest rates would remain at low levels for many more months at least.

South Korean central bank meanwhile voiced concerns over negative impact from the U.S. Fed's tapering of its asset purchases.

The BOK said in a statement that the rate was kept on hold because policymakers took into consideration possible changes in the global financial market stemming from the Fed's reduction in its quantitative easing. The bank also cited worries about sluggish growth in some emerging economies caused by the Fed's tapering.

Chances grew that the South Korean economy, which depends on exports for around half of its growth, could be hit by growing volatilities in some emerging economies with weak economic fundamentals, such as Argentina and Turkey, which saw their currencies plunge against the U.S. dollar amid the Fed's tapering.

Currencies of Argentina and Turkey tumbled around 19 percent and 7 percent respectively against the dollar in the past two months, compared with a 2.5 percent fall in the South Korean currency versus the greenback.

The BOK said that although the domestic economy would keep its growth trend due to economic recovery in advanced economies and improved consumer sentiment, the country's business volatilities could be expanded if instability in emerging economies is prolonged amid the continued Fed's tapering.

Trend of the weak Japanese yen, caused by the so-called Abenomics or fiscal and monetary stimulus policies advocated by Japanese Prime Minister Shinzo Abe, maintained worries about weak price competitiveness of local exporters that are fiercely competing with Japanese rivals in overseas markets.

Positive factors remained. The Finance Ministry said in its monthly economic assessment that the economy saw its employment and prices stay stable, noting that manufacturing activities expanded at a fast pace in December.

Job creation in South Korea saw the fastest growth in around 12 years, indicating a full-fledged recovery of the nation's labor market. The number of people employed reached 24,759,000 in January, up 705,000 from the same month of last year. It was the largest monthly increase since March 2002 when the job creation reached 842,000.

Consumer prices rose 1.1 percent in January from a year earlier. The headline inflation was 1.3 percent in 2013, the lowest since 1999 when it recorded 0.8 percent.

The country's real gross domestic product (GDP) expanded 3.9 percent in the fourth quarter of last year, close to the pre- crisis level. Consumer sentiment kept its recovery trend, and facility investment showed recovery signs recently.

Exports, the economy's main growth engine, grew modestly despite less working days caused by the Lunar New Year's holiday. Exports of mobile phones and chips increased more than 15 percent last month.

"It would be desirable for the central bank to stay neutral when upside and downside risks coexist," Lee Jung-joon, a fixed- income analyst at HMC Investment & Securities in Seoul, said before the policy decision.

 

Editor: Fu Peng
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