Bloomberg News

Korea’s Kim Sees Inflation Over 4% as Central Bank Holds Rates

October 13, 2011

Oct. 14 (Bloomberg) -- Bank of Korea Governor Kim Choong Soo said inflation is likely to exceed the central bank’s 4 percent target limit this year and board members haven’t discussed cutting interest rates.

“For the year of calendar 2011, probably inflation as measured by CPI may turn out to be slightly over 4 percent,” Kim, 64, said in an interview in Seoul yesterday, referring to the consumer price index. “We should meet the medium-term target” of 2 percent to 4 percent next year, he said.

Kim spoke after his officials voted unanimously to keep the benchmark interest rate unchanged, and a report on China’s trade highlighted the threat to export-dependent Asian economies from Europe’s debt crisis. Already, Indonesia has cut rates, the Philippines has unveiled a stimulus plan and China this week announced measures to aid small businesses.

Kim said he’s not pessimistic about the outlook of the U.S. economy, describing it as resilient. He added that Europe may take longer to recover.

The won strengthened 0.9 percent to 1,155.90 per dollar in Seoul yesterday, according to data compiled by Bloomberg. The currency lost more than 8 percent over the past three months, Asia’s second-worst performance, fueling inflationary pressure by increasing import costs. The Kospi Index rose 0.8 percent.

Emerging Economies

A deepening European debt crisis and a struggling U.S. recovery have prompted some emerging-market nations to opt to support their economies rather than combat inflation. Brazil, Turkey, Russia and Pakistan have cut borrowing costs in 2011.

Bank Indonesia lowered its reference rate by a quarter of a percentage point to 6.5 percent this week, defying the predictions of all 15 economists surveyed by Bloomberg News. Philippine President Benigno Aquino announced a 72 billion-peso ($1.7 billion) spending package as his government cut growth estimates.

The Bank of Korea said in a statement after yesterday’s decision that “downside risks to growth have increased” because Europe’s debt woes may spread and advanced economies show signs of “sluggishness.”

China reported yesterday that growth in exports to Europe slumped to 9.8 percent in September from 22 percent in August Weakening demand is also taking a toll on South Korea, where exports, equivalent to about half the economy, grew at a slower pace in September. Industrial production slid 1.9 percent in August from July, when it decreased 0.3 percent.

Samsung Electronics Co., the world’s second-largest maker of mobile phones, has a “conservative” earnings forecast for the second half of this year because of global economic developments, Hong Chang Wan, head of the company’s home appliance business, said last week.

Consumer-price increases in South Korea eased to 4.3 percent from a year earlier last month, after a 5.3 percent surge in August. The benchmark interest rate stands at 3.25 percent

--Editors: Ken McCallum, Brett Miller

To contact the reporters on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net; Deirdre Bolton in New York at dbolton@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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