ID :
23487
Thu, 10/09/2008 - 13:49
Auther :
Shortlink :
http://m.oananews.org//node/23487
The shortlink copeid
S. Korean central bank cuts key rate for October
(ATTN: UPDATES with market close and economist's remarks in paras 8,22,23)
By Kim Soo-yeon
SEOUL, Oct. 9 (Yonhap) -- South Korea's central bank slashed its key interest rate by a quarter percentage point Thursday in a concerted effort to soothe global financial turmoil and stem the drastic slowdown of the local economy.
Bank of Korea (BOK) Gov. Lee Seong-tae and his six fellow policymakers cut the benchmark 7-day repurchase agreement rate to 5 percent for October, the first rate cut since November 2004. The BOK also lowered the interest on its loans to
commercial banks by 0.25 percentage point to 3.25 percent.
The rate cut comes just two months after the BOK raised borrowing costs by a
quarter percentage point to an eight-year high of 5.25 percent to control
spiraling inflation.
The BOK joined other central banks in cutting interest rates, aiming to stem the
deepening global financial rout.
On Wednesday, the U.S. Federal Reserve slashed its key rate by 0.5 percentage
point to 1.5 percent. Other global central banks like the European Central Bank
and the Bank of England joined the Fed-led coordinated rate cuts.
"There will likely be no bright signs for economic growth until the first half of
next year," Lee told a press conference after a rate-setting meeting. "It is
possible there will be an interest rate change later on."
Economists say the rate reduction came as the BOK tried to calm the financial
market turmoil, which is feared to hurt the real economy.
"The BOK made the rate cut to show it is ready to tackle ongoing market turmoil,"
said Kim Jae-eun, an economist at Hana Daetoo Securities Co.
Asia's fourth-largest economy is losing ground, led by faltering domestic demand.
Domestic industrial output grew at the slowest pace in 11 months in August.
The South Korean economy expanded 0.8 percent in the second quarter, as earlier
estimated, but domestic demand in the April-June period was more sluggish than an
estimate made in July.
Private spending, one of the main growth engines of the local economy, declined
0.2 percent in the second quarter from three months earlier. Consumer spending
dipped for the first time since the second quarter of 2004.
Rising debts and high inflation are sapping household and corporate spending,
denting domestic demand.
"The economic growth rate could fall further in the fourth quarter and in the
first half of 2009," Lee said. In July, the BOK said the economy is likely to
grow 3.9 percent in the second half.
The central bank said in a statement that despite robust exports, the growth of
the South Korean economy is markedly weakening due to sluggish domestic demand.
But the rate cut defies growing pressure to rein in inflation. South Korea's
consumer prices climbed 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 10th 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 steep fall against the U.S. dollar and a possible increase in public
utility rates are also expected to put upward pressure on already-high inflation.
South Korea's foreign exchange market has been suffering from a dollar shortage
as banks and companies are scrambling to hoard the safer greenback on concerns
over a financial crisis sparked by the collapse of investment bank Lehman
Brothers Holdings Inc.
"If the foreign exchange market stabilizes and the downward path of oil prices
continues, the growth of inflation is expected to ease toward next year," Lee
said.
The local currency tumbled to a 10-year low against the dollar Wednesday due to a
deepening global credit crunch, which is expected to pose further difficulties
for local companies and banks in securing dollars. Due to suspected intervention,
the Korean currency closed at 1,379.5 won to the dollar on Thursday, up 15.5 won
from the previous session. The won has fallen about 32 percent versus the dollar
so far this year.
However, economists say a rate cut is feared to exert further downward pressure
on the won as foreign investors may pull money out of the Korean bond market.
"I think market players are displaying an irrational overreaction in the foreign
exchange market. Today's rate cut would not have a negative effect on the won's
value," the governor said, brushing off such concerns.
Experts said the BOK opened the possibility of a rate reduction and may lower the
rate once more as early as this year.
"The timing of an additional rate cut would depend on the stabilization of global
financial markets," said Lee Sung-kwon, a senior economist at Goodmorning Shinhan
Securities Co., adding that a rate reduction within the year could not be ruled
out.
sooyeon@yna.co.kr
(END)
By Kim Soo-yeon
SEOUL, Oct. 9 (Yonhap) -- South Korea's central bank slashed its key interest rate by a quarter percentage point Thursday in a concerted effort to soothe global financial turmoil and stem the drastic slowdown of the local economy.
Bank of Korea (BOK) Gov. Lee Seong-tae and his six fellow policymakers cut the benchmark 7-day repurchase agreement rate to 5 percent for October, the first rate cut since November 2004. The BOK also lowered the interest on its loans to
commercial banks by 0.25 percentage point to 3.25 percent.
The rate cut comes just two months after the BOK raised borrowing costs by a
quarter percentage point to an eight-year high of 5.25 percent to control
spiraling inflation.
The BOK joined other central banks in cutting interest rates, aiming to stem the
deepening global financial rout.
On Wednesday, the U.S. Federal Reserve slashed its key rate by 0.5 percentage
point to 1.5 percent. Other global central banks like the European Central Bank
and the Bank of England joined the Fed-led coordinated rate cuts.
"There will likely be no bright signs for economic growth until the first half of
next year," Lee told a press conference after a rate-setting meeting. "It is
possible there will be an interest rate change later on."
Economists say the rate reduction came as the BOK tried to calm the financial
market turmoil, which is feared to hurt the real economy.
"The BOK made the rate cut to show it is ready to tackle ongoing market turmoil,"
said Kim Jae-eun, an economist at Hana Daetoo Securities Co.
Asia's fourth-largest economy is losing ground, led by faltering domestic demand.
Domestic industrial output grew at the slowest pace in 11 months in August.
The South Korean economy expanded 0.8 percent in the second quarter, as earlier
estimated, but domestic demand in the April-June period was more sluggish than an
estimate made in July.
Private spending, one of the main growth engines of the local economy, declined
0.2 percent in the second quarter from three months earlier. Consumer spending
dipped for the first time since the second quarter of 2004.
Rising debts and high inflation are sapping household and corporate spending,
denting domestic demand.
"The economic growth rate could fall further in the fourth quarter and in the
first half of 2009," Lee said. In July, the BOK said the economy is likely to
grow 3.9 percent in the second half.
The central bank said in a statement that despite robust exports, the growth of
the South Korean economy is markedly weakening due to sluggish domestic demand.
But the rate cut defies growing pressure to rein in inflation. South Korea's
consumer prices climbed 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 10th 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 steep fall against the U.S. dollar and a possible increase in public
utility rates are also expected to put upward pressure on already-high inflation.
South Korea's foreign exchange market has been suffering from a dollar shortage
as banks and companies are scrambling to hoard the safer greenback on concerns
over a financial crisis sparked by the collapse of investment bank Lehman
Brothers Holdings Inc.
"If the foreign exchange market stabilizes and the downward path of oil prices
continues, the growth of inflation is expected to ease toward next year," Lee
said.
The local currency tumbled to a 10-year low against the dollar Wednesday due to a
deepening global credit crunch, which is expected to pose further difficulties
for local companies and banks in securing dollars. Due to suspected intervention,
the Korean currency closed at 1,379.5 won to the dollar on Thursday, up 15.5 won
from the previous session. The won has fallen about 32 percent versus the dollar
so far this year.
However, economists say a rate cut is feared to exert further downward pressure
on the won as foreign investors may pull money out of the Korean bond market.
"I think market players are displaying an irrational overreaction in the foreign
exchange market. Today's rate cut would not have a negative effect on the won's
value," the governor said, brushing off such concerns.
Experts said the BOK opened the possibility of a rate reduction and may lower the
rate once more as early as this year.
"The timing of an additional rate cut would depend on the stabilization of global
financial markets," said Lee Sung-kwon, a senior economist at Goodmorning Shinhan
Securities Co., adding that a rate reduction within the year could not be ruled
out.
sooyeon@yna.co.kr
(END)
