South Korea keeps key interest rate unchanged
2012-08-09 17:16:03
South Korea's central bank kept its key interest rate unchanged Thursday despite a downbeat assessment of the global economy, but analysts said another cut could be on the cards before the end of the year.
The Bank of Korea's (BOK) monetary policy committee, in a unanimous decision, kept the benchmark seven-day repo rate steady at 3.0 percent for August.
In July the bank announced a surprise cut of 25 basis points, the first reduction in more than three years, as Europe's protracted debt crisis and China's slowdown weighed on the export-dominated economy.
Exports dropped 8.8 percent in July from a year earlier. The economy grew just 0.4 percent quarter-on-quarter in April-June compared with 0.9 percent in January-March.
The bank forecast a very moderate recovery globally and said the trend of domestic economic growth had slowed "owing to lacklustre exports and domestic demand".
Inflation eased in July year-on-year to 1.5 percent, its lowest rate in more than 12 years, and the bank forecast it would stay low for the time being.
But in a statement it cited potential risk factors, such as rising international grain prices and increases in local utility fees.
Analysts said a back-to-back rate cut could have fuelled bleak international assessments of the prospects for Asia's fourth-largest economy.
The bank "can now wait and see the impact of monetary easing steps (expected) to be taken by the US and Europe before deciding on taking a second rate cut", Kong Dong-Rak, of Taurus Investment and Securities, told Yonhap news agency.
The central bank's latest forecast is for the economy to grow 3.0 percent this year but its governor Kim Choong-Soo has said that may be too optimistic
Many analysts said a rate cut was likely in coming months after Thursday's decision to stand pat.
"The chances for a rate cut next month have increased now," Samsung Securities analyst Ryan Oh told Dow Jones Newswires.
"Given that the Korean economy is in a downturn, I expect further easing after a cut in September to bring the policy rate to 2.5 percent by year-end."