Bloomberg News

Bank of Korea Holds Rates Amid Positve Economic Signs

November 08, 2012

The Bank of Korea held borrowing costs as policy makers pause to assess the effects of two cuts earlier this year amid signs that growth in Asia’s fourth- largest economy may rebound.

Governor Kim Choong Soo and his board kept the benchmark seven-day repurchase rate at 2.75 percent, the central bank said in a statement in Seoul today, after a 25 basis point cut last month and in July. All of the 16 economists surveyed by Bloomberg News predicted the move.

Australia and Indonesia held rates this week and officials in China said yesterday that Asia’s biggest economy is making gains. South Korea’s first increase in four months in exports in October signaled the economy may be recovering just as the nation readies for a presidential election on Dec. 19, while strength in the won could act as a drag.

“After delivering two rate cuts so far this year, the Bank of Korea appears to have completed its monetary-easing cycle,” said Ronald Man, a Hong Kong-based analyst at HSBC Holdings Plc. “The forthcoming presidential election will make any moves by the central bank particularly sensitive.”

The won weakened 0.1 percent to 1,090.68 per dollar as of 11:08 a.m. in Seoul, after touching a 14-month high of 1,085.40 on Nov. 7. The Kospi (KOSPI) index of stocks fell 1.1 percent.

“Domestic economic activity has continued on a weak growth path since the second quarter of this year, but the slowdown has recently appeared to be easing,” the BOK said in an English- language statement. “In the coming months, the Korean economy is likely to show a trend of improvement, albeit moderate.”

Improving Economy

The Finance Ministry cited strengthening exports and industrial production as evidence of better conditions in a monthly economic assessment on Nov. 6. Output rose for the first time in four months in September on stronger sales of cars and electronics.

Still, external uncertainties such as political events in major economies are delaying a recovery in consumer and investor confidence, according to the ministry. Re-elected President Barack Obama and the U.S. Congress face the so-called fiscal cliff, and China’s Communist Party yesterday began a meeting to choose new leaders.

The won’s gains may also begin to hurt some South Korean exporters in the fourth quarter, Deputy Trade Minister Han Jin Hyun told reporters on Nov. 1.

South Korea’s economy expanded 1.6 percent from a year earlier in the third quarter, the slowest pace since 2009. The BOK will report revised growth for the period on Dec. 6, two weeks before the presidential vote.

The administration of President Lee Myung Bak, who is constitutionally barred from seeking re-election at the end of his five-year term, has resisted pressure for an extra budget to boost growth. His 2013 budget proposal targets a fiscal deficit of 0.3 percent of gross domestic product, a six-year low.

To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net

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


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