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S.Korea freezes policy rate for 12 months after ferry sinking disaster

English.news.cn   2014-05-09 10:29:41

SEOUL, May 9 (Xinhua) -- Bank of Korea (BOK), South Korea's central bank, froze its policy rate for 12 months in a row on Friday as worries spread over a sluggish private consumption following the ferry sinking disaster.

BOK Governor Lee Ju-yeol, who convened his second monetary policy meeting, decided to keep the seven-day repurchase rate on hold at 2.5 percent along with five other monetary policy board members.

The central bank said in a statement that it would manage its monetary policy while closely monitoring changes in domestic demand following the ferry Sewol accident as well as external risk factors, including the U.S. monetary policy stance, sluggish emerging economies and geopolitical risks in Eastern Europe.

It was the first time the central bank mentioned its concerns about the possible slowdown in private consumption caused by the ferry sinking disaster.

The BOK said in a separate economic report that uncertainties mounted over demand in the domestic market following the ferry accident.

President Park Geun-hye held an emergency meeting Friday to come up with measures to prevent a consumption slowdown following the ferry sinking disaster. Finance Minister Hyun Oh-seok said Tuesday that last month's ferry sinking accident had a more or less negative influence on consumption and service industry activity.

Retail sales, usage of cultural facilities and tourism have shown sluggishness since the 6,825-ton passenger ferry Sewol capsized and sank off the country's southwestern coast on April 16, Hyun said.

A paroxysm of grief swept all over the country as two thirds of the 476 passengers aboard the ill-fated ship were high school students. Memorial altars were set up nationwide to mourn the victims. Cheering at baseball stadiums has been prevented, and schools canceled class trips. Celebration ceremony for the Buddha' s May 6 birthday was held to mourn the victims.

As of Friday morning, 273 people have been confirmed dead and 31 others are still missing. No survivor has been reported since 172 people were saved from the ship and sea on April 16. "Many Korean individuals and corporate have delayed or canceled entertainment, promotions and travel ahead of the Golden Week, which is comprised of the May 1 Labor Day, the May 5 Children's Day and the May 6 Buddha's Birthday," said Kwon Young-sun, a senior economist at Nomura in Hong Kong.

The first hawkish comments, which stressed the need to hike rates, were made during the April monetary policy meeting, but the rate hike was not expected to be realized in the foreseeable future.

The policy rate has been anchored at the level since May 2013 when the central bank lowered borrowing costs by 25 basis points.

According to the minutes of the April 10 policy meeting, one monetary policymaker said the central bank needed to prepare for future rate hikes to normalize the policy rate at an appropriate time when the economic recovery is visible.

The policymaker said that if the low rate persists, negative side effects could outweigh positive effects, citing less incentive for savings, delayed restructuring and rising household debts as the negative sides.

Governor Lee also made his hawkish remarks on May 4, saying the future direction of the policy rate looked hard to go downward given the expected growth rate of 4 percent for 2014.

The country's real gross domestic product (GDP) expanded 0.9 percent in the first quarter from three months ago, posting the identical figure with the fourth quarter of last year. It was seen as a modest growth.

Output in the mining and manufacturing industries gained 0.9 percent in March from a month earlier after falling 0.2 percent in January and 1.9 percent in February respectively.

Consumer prices advanced 1.5 percent in April from a year earlier, rising the most in eight months, but the faster increase was attributed to the low base effect of the same month of last year when policy effects such as free childcare pulled down the consumer price inflation.

The headline inflation stayed below the BOK's mid-term inflation target band of 2.5-3.5 percent for 23 months in a row.

 

Editor: Xiang Bo
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