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    Korea
     Jun 10, 2005
Korea's central bank freezes key rate for June

SEOUL - South Korea's central bank on Thursday left its benchmark interest rate unchanged at 3.25% for June for a seventh month in a bid to spur the sluggish economy.

The Bank of Korea (BOK) has frozen the call rate, or the interest on overnight inter-bank loans, since December after cutting it by 0.25 percentage point each in August and November. The move is in line with a consensus forecast in a poll of 13 domestic and foreign financial institutions by Yonhap Infomax, the financial news arm of The Yonhap News Agency.

The rate freeze comes as Asia's third-largest economy is seen as still struggling to pull out of a two-year slump triggered by the collapse of a credit card bubble in late 2002. South Korea's government has been voicing strong hopes for a much-awaited recovery this year, but a series of data raised concerns that any full-fledged turnaround may take longer than expected.

South Korea's economic growth fell to a two-year low in the first quarter as weak private consumption failed to compensate for cooling exports. Exports, which make up more than half of South Korea's gross domestic product, grew 11.8% year-on-year in May, compared with a more than 30% full-year gain in 2004.

Industrial output growth also slowed to 3.8% in April from a 4.9% gain in March, adding fuel to worries that the turnaround may not be as strong as touted by the government. Consumer confidence fell for a second month in May, fueling worries that private consumption may not be gaining ground, a government report showed earlier in the day.

However, credit card spending, one of the barometers of the country's private consumption, grew in May. It increased 18.9% year-on-year to 16.05 trillion won (US$16.38 billion), its fastest pace in five months. International bodies such as the International Monetary Fund also voiced optimism Tuesday that South Korea is on track for an economic recovery, but will need a budget stimulus and low interest rate policy to spur growth.

South Korea's government front-loaded its budget in the first half and plans to extend tax cuts on automobiles and other types of items in the second half to boost private spending and generate growth. Inflation remained tame, giving the central bank room to maintain the soft monetary policy. South Korea's consumer prices fell for the first time in six months in May due to a drop in agricultural and industrial goods prices.

The central bank expects South Korea's economy to grow 4% this year, while the government holds a more optimistic view of a 5% gain. South Korea's economy grew 4.6% last year, up from a 3.1% gain in 2003, thanks to brisk exports.

(Asia Pulse/Yonhap)

 

 
 



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