ID :
35216
Fri, 12/12/2008 - 10:53
Auther :
Shortlink :
http://m.oananews.org//node/35216
The shortlink copeid
BOK cuts key rate to record low 3 pct
By Kim Soo-yeon
SEOUL, Dec. 11 (Yonhap) -- South Korea's central bank lowered its key interest rate by a record one percentage point on Thursday, citing sharply cooling economic growth, and hinted it could take more steps to bolster the slowing economy and ease a credit crunch.
In a monthly policy meeting, the Bank of Korea (BOK) slashed the benchmark
seven-day repo rate to a record low of 3 percent, marking the fourth rate cut in
two months. The previous lowest level was 3.25 percent set in early November
2004.
The BOK has trimmed the rate by a combined 2.25 percentage points from 5.25
percent since early October in an effort to keep global financial turmoil from
impacting the real economy.
"The growth of the South Korean economy will sharply slow for a considerable
period of time as exports will likely lose steam amid the global slump," BOK Gov.
Lee Seong-tae told a press conference.
"A possibility (for more rate cuts) is always open," he said, adding that the BOK
will use its policy tools to provide liquidity and to stabilize the financial
markets.
Along with the policy rate cut, the BOK reduced the interest on low-rate loans to
commercial lenders by half a percentage point to 1.75 percent. It also decided to
allow an additional 12 local securities firms to participate in its repurchase
agreement operations to swiftly provide liquidity to the financial system.
"The BOK is considering offering liquidity to specific financial sectors if they
are suffering from cash shortages," Lee said, adding that more contingency plans
could be in the cards should a severe liquidity crunch emerge.
On the back of the rate cut, the key stock index closed up 0.75 percent to
1,154.43. The local currency closed at 1,358.5 won to the U.S. dollar, up 2.6
percent from Wednesday's close. The return on three-year Treasuries fell 0.2
percentage point to 4.01 percent and the benchmark yield on five-year government
bonds declined 0.08 percentage point to 4.44 percent.
The move comes as the government has unveiled a raft of economic stimulus
measures including additional fiscal spending and tax cuts.
"A full percentage point rate cut came as a surprise. The central bank seemed to
try to act preemptively as economic growth for next year is widely expected to
markedly slow," said Kim Jae-eun, an economist at Hana Daetoo Securities Co.
The South Korean economy grew 0.5 percent in the third quarter from three months
earlier, the weakest growth in four years, as exports fell and domestic demand
stagnated.
Asia's fourth-largest economy is expected to further lose steam next year as
exports, which account for about 60 percent of the economy, have already shown
signs of slowing. The Korean economy grew 5 percent last year.
South Korean overseas shipments declined 18.3 percent on-year in November, the
biggest drop in seven years, as the global economic downturn dealt a blow to
emerging markets like China, the main destination for Korean goods.
International bodies and global investment banks have projected a gloomy outlook
for the Korean economy next year. The International Monetary Fund cut its growth
prediction for the Korean economy to 2 percent in 2009 from 3.5 percent. UBS AG
forecast that Korea's economy would contract 3 percent next year. Both
predictions fall below the government's target growth rate of 4 percent.
Meanwhile, the country's consumer prices grew 4.5 percent on-year in November,
the slowest in seven months, on falling oil prices.
Experts said the BOK is expected to reduce borrowing costs to cushion the impact
of the global recession on the export-driven local economy and would do more
actions to provide liquidity to ease strains in the financial markets.
"I think there is room for the BOK to continue its monetary easing probably to
around 2 percent until the first half of next year, given deteriorating economic
activities," said Lee Sung-kwon, an economist at Goodmorning Shinhan Securities
Co. "Along with the monetary easing, the BOK will likely take more steps to pump
liquidity into targeted areas."
Jeon Hyo-chan, an economist at Samsung Economic Research Institute, said
additional rate cuts cannot be excluded, but a steep cut like one seen today
would not be easy.
SEOUL, Dec. 11 (Yonhap) -- South Korea's central bank lowered its key interest rate by a record one percentage point on Thursday, citing sharply cooling economic growth, and hinted it could take more steps to bolster the slowing economy and ease a credit crunch.
In a monthly policy meeting, the Bank of Korea (BOK) slashed the benchmark
seven-day repo rate to a record low of 3 percent, marking the fourth rate cut in
two months. The previous lowest level was 3.25 percent set in early November
2004.
The BOK has trimmed the rate by a combined 2.25 percentage points from 5.25
percent since early October in an effort to keep global financial turmoil from
impacting the real economy.
"The growth of the South Korean economy will sharply slow for a considerable
period of time as exports will likely lose steam amid the global slump," BOK Gov.
Lee Seong-tae told a press conference.
"A possibility (for more rate cuts) is always open," he said, adding that the BOK
will use its policy tools to provide liquidity and to stabilize the financial
markets.
Along with the policy rate cut, the BOK reduced the interest on low-rate loans to
commercial lenders by half a percentage point to 1.75 percent. It also decided to
allow an additional 12 local securities firms to participate in its repurchase
agreement operations to swiftly provide liquidity to the financial system.
"The BOK is considering offering liquidity to specific financial sectors if they
are suffering from cash shortages," Lee said, adding that more contingency plans
could be in the cards should a severe liquidity crunch emerge.
On the back of the rate cut, the key stock index closed up 0.75 percent to
1,154.43. The local currency closed at 1,358.5 won to the U.S. dollar, up 2.6
percent from Wednesday's close. The return on three-year Treasuries fell 0.2
percentage point to 4.01 percent and the benchmark yield on five-year government
bonds declined 0.08 percentage point to 4.44 percent.
The move comes as the government has unveiled a raft of economic stimulus
measures including additional fiscal spending and tax cuts.
"A full percentage point rate cut came as a surprise. The central bank seemed to
try to act preemptively as economic growth for next year is widely expected to
markedly slow," said Kim Jae-eun, an economist at Hana Daetoo Securities Co.
The South Korean economy grew 0.5 percent in the third quarter from three months
earlier, the weakest growth in four years, as exports fell and domestic demand
stagnated.
Asia's fourth-largest economy is expected to further lose steam next year as
exports, which account for about 60 percent of the economy, have already shown
signs of slowing. The Korean economy grew 5 percent last year.
South Korean overseas shipments declined 18.3 percent on-year in November, the
biggest drop in seven years, as the global economic downturn dealt a blow to
emerging markets like China, the main destination for Korean goods.
International bodies and global investment banks have projected a gloomy outlook
for the Korean economy next year. The International Monetary Fund cut its growth
prediction for the Korean economy to 2 percent in 2009 from 3.5 percent. UBS AG
forecast that Korea's economy would contract 3 percent next year. Both
predictions fall below the government's target growth rate of 4 percent.
Meanwhile, the country's consumer prices grew 4.5 percent on-year in November,
the slowest in seven months, on falling oil prices.
Experts said the BOK is expected to reduce borrowing costs to cushion the impact
of the global recession on the export-driven local economy and would do more
actions to provide liquidity to ease strains in the financial markets.
"I think there is room for the BOK to continue its monetary easing probably to
around 2 percent until the first half of next year, given deteriorating economic
activities," said Lee Sung-kwon, an economist at Goodmorning Shinhan Securities
Co. "Along with the monetary easing, the BOK will likely take more steps to pump
liquidity into targeted areas."
Jeon Hyo-chan, an economist at Samsung Economic Research Institute, said
additional rate cuts cannot be excluded, but a steep cut like one seen today
would not be easy.
