ID :
22029
Wed, 10/01/2008 - 00:47
Auther :

Time for Bank of Korea to cut rates, Moody's says

SEOUL, Sept. 30 (Yonhap) -- South Korea's central bank needs to swiftly cut its
key interest rates to stimulate the domestic economy and shield itself from
fallout emanating from the U.S. financial crisis, a research unit of Moody's
Investors Service said Tuesday.
South Korea, which survived a potential massive capital outflow due to an
unusually high amount of bonds maturing this month, has not been immune to the
global credit market mess, said Daniel Melser, a Sydney-based economist at
Moody's Economy.com.
"A shortage of liquidity has emerged as a real problem of late," Melser said.
"For this reason and others, it is time for the Bank of Korea to seriously ponder
cutting rates before the year is out."
The South Korean central bank will hold a monetary-policy meeting on Oct. 9.
As oil prices have subsided, a slowdown in price growth is freeing the hands of
the Bank of Korea's inflation hawks, who had been loath to lower rates as long as
price growth was accelerating, the economist said.
"It will take a stronger domestic economy to counteract the weaker overseas
demand for Korea's exports stemming from the financial crisis," said Melser. "The
answer is a rate cut, and soon."
Asia's fourth-largest is facing a serious challenge from a slowdown in exports,
which constitute the nation's only locomotive for growth, as the U.S.-sparked
financial turmoil has created a global economic slowdown.
The local stock market has been hit by developments in the U.S. in recent weeks
in the wake of the collapse of Lehman Brothers Holdings Inc., the Bank of
America's purchase of Merrill Lynch & Co. and the U.S. government's rescue of
American International Group Inc.
In morning trading on Tuesday, South Korea's benchmark stock index plunged more
than 4 percent after surprising news that U.S. lawmakers rejected a US$700
billion bailout package to save their financial sector from failure.
The U.S. is South Korea's second-largest export destination after China.
Earlier in the day, South Korea's National Statistical Office said the nation's
August industrial output fell 2.2 percent from a month earlier, missing analysts'
estimates.
Last month, the Bank of Korea kept its base rate unchanged at 5.25 percent after
raising it by a quarter of a percentage point in August for the first time in a
year.

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