BOK forecast to freeze key rate in October

SEOUL, Oct. 7 (Yonhap) -- South Korea's central bank is widely expected to leave its key interest rate unchanged in October amid conflicting risks posed by persisting inflation and a slowing economy, a poll showed Tuesday.

Economists at 19 financial institutions predicted that the Bank of Korea (BOK)
will freeze the benchmark 7-day repo rate at 5.25 percent on Thursday, according
to the poll by Yonhap Infomax, the financial news arm of Yonhap News Agency.
The BOK raised the key rate in August by a quarter percentage point to an
eight-year high of 5.25 percent to control spiraling inflation, the first
increase in a year.
Experts said the BOK is expected to put the rate on hold for October mainly
because inflation concerns persist despite concerns over the slowing economy.
"Despite the country's weaker industrial output data, the central bank is
forecast to hold the rate steady in October as core inflation shot up," said Chun
Chong-woo, a senior economist at SC First Bank.
South Korea's consumer prices rose 5.1 percent on-year in September, slowing from
a 5.6 percent gain in August, as oil and commodity prices showed signs of
stabilization. The country's consumer prices breached the BOK's target range of
2.5-3.5 percent for the tenth straight month.
But core inflation, which excludes volatile food and fuel prices, jumped 5.1
percent on-year last month, accelerating from 4.7 percent in August. The local
currency's plunge against the U.S. dollar and a possible increase in public
utility rates are also expected to put upward pressure on already-high inflation.
The South Korean currency tumbled to an over 6-year low per the dollar on Tuesday
due to increased concerns that the global credit crunch is deepening. The won has
fallen more than 30 percent versus the dollar so far this year.
But Asia's fourth-largest economy is losing ground led by faltering domestic
demand. South Korea's industrial output grew at the slowest pace in 11 months in
August amid sluggish domestic demand and spreading concerns over a global
slowdown.
Private spending, one of the main growth engines of the South Korean economy,
declined 0.2 percent in the second quarter from three months earlier, compared
with an earlier estimate of a 0.1 percent contraction. Consumer spending dipped
for the first time since it fell 0.1 percent on-quarter in the second quarter of
2004.
Most economists expected that the BOK would freeze the rate throughout this year,
but may cut the borrowing costs in the long term considering the slowing economy.
"Economic growth is cooling down and the growth of head inflation has showed some
signs of easing, raising the chance of a rate cut. But a dovish action will
likely come only after the country's inflation stabilizes," said Ma Joo-ok, an
economist at Kiwoom.com Securities Co.
sooyeon@yna.co.kr
(END)