S Korea freezes key rate at 2.25%
Write:
Warburton [2011-05-20]
South Korea's central bank on Thursday decided to leave the key interest rate at the current level of 2.25 percent for the third straight month, in contrast with wide market forecasts it would revise up the rate.
In its monthly rate setting meeting, the Bank of Korea (BOK) reached a decision to keep the rate at the status quo mainly due to lingering concerns on a global recovery and recent turmoil in financial markets.
"The Monetary Policy Committee of the Bank of Korea decided to maintain the Base Rate at its current level (2.25 percent) for the intermeeting period," the BOK said in a press release.
Upon the decision, the BOK noted a difference in economic recovery pace between emerging and advanced countries, particularly paying attention to a slow-down in the U.S. recovery.
"Looking ahead, there exists the possibility of the heightened volatility of economic activity and exchange rates in major countries acting as a risk factor for the global economy," the central bank said.
The domestic economy, however, was diagnosed to be in relatively good shape, expected to continue on an upward track, even in the presence of external risk, together with improving labor market conditions.
With respect to inflationary pressure, the BOK pointed to the recent sharp hike in farm product prices, also warning against upward pressures on the demand side down the road.
In the real estate market, however, housing sales prices have shown a declining trend in Seoul and its surrounding areas, the BOK said.
The financial market factor rose as a key issue, with stock prices soaring, the local currency sharply hiking, and market interest rates plunging, which came in response to massive inflow of foreign capital, the BOK explained.
According to the BOK, mortgage lending has also widened due to the increase in the numbers of newly occupied apartments, despite a drop in house transactions.
"Looking ahead, the Committee will conduct monetary policy in such a way as to help the economy maintain price stability, while sustaining sound growth under the accommodative policy stance," the central bank said, vowing to take overall account of financial and economic conditions at home and abroad as they carry out monetary policies.
In July, the BOK abruptly conducted the first rate increase by lifting the rate to 2.25 percent from a record low of 2 percent, ending the long-kept rate freeze for sixteen straight months, in a bid to preemptively tackle inflationary pressure.
The BOK, with its governor continuously focusing on the need to further slow down inflationary pressure, was widely expected to further lift the rate in September, but disappointed the market by leaving it at the status quo.