Gov. Kim rules out immediate rate cut; emphasis on inflation softened


The Bank of Korea held benchmark rates steady, as expected, for the fifth straight month on Friday, amid heightened fears about the eurozone’s sovereign debt crisis that is spreading from Greece to Italy.

Gov. Kim Choong-soo and his fellow Monetary Policy Committee policymakers unanimously decided to freeze the rate at 3.25 percent, a decision partly affected by the inflation falling last month.

“As long as current economic situations do not change in an unexpected way, Korea’s monetary policy stance is still viewed as accommodative,” Kim said at a news conference, suggesting that the key rate would stay on hold for a while. 

The BOK said the risks to growth continue to come from the eurozone debt crisis and instability in the global financial market ― the same view on external factors that the central bank has maintained in recent months.

As for internal factors, however, the BOK shifted its tone by dropping the phrase “with greater emphasis” on ensuring price stability, suggesting that it does not consider inflation as threatening as it was a couple of months earlier.

Korea’s consumer prices rose 3.9 percent year-on-year last month, slowing from a 4.3 percent gain the previous month. The latest figure made it to the BOK’s 2-4 percent target range for the first time this year, softening fears about inflation spinning out of control.

The BOK’s decision came after other central banks opted for a rate cut to grapple with the economic slowdown. Indonesia’s central bank, for instance, lowered the key rate by 50 basis points on Thursday.

Other countries including Turkey, Brazil, Israel and Australia chose to cut the rates in recent weeks. The European Central Bank also slashed the rate by a quarter percentage point to 1.25 percent on Nov. 3, surprising the market.

The BOK governor, however, stressed that he and other policymakers did not discuss a rate cut at the November meeting, brushing aside speculation that Korea might shift its monetary stance preemptively amid the spreading eurozone crisis.

Instead, Kim said the BOK would be able to raise the rate if the country’s inflation stabilizes and global market turmoil subsides.

Asia’s fourth-largest economy saw its quarterly growth slow to 0.7 percent in the third quarter from 0.9 percent in the second.

The growth rate of exports also weakened to 9.3 percent in October from a year earlier, marking the lowest in two years.

The BOK has raised the key rate by a total of 125 basis points in five steps from a record low of 2 percent since July last year to rein in inflation.

By Yang Sung-jin (insight@heraldcorp.com)