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key rate-March

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(Globalpost/GlobalPost)

By Kim Soo-yeon

SEOUL, March 14 (Yonhap) -- South Korea's central bank froze the key interest rate for the fifth straight month on Thursday, apparently awaiting what measures the new government will take to stimulate the slowing economy.

In a split decision, Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers held the benchmark seven-day repo rate steady at 2.75 percent for March. The central bank cut the rate in July and October 2012.

The rate freeze came as the global economy is showing some signs of stabilizing while geopolitical risks from North Korea have heightened.

"The BOK's forecast for the growth path made in January is still valid ... The current policy stance is already viewed as accommodative," Kim told a press conference.

The governor also did not close door for policy changes, saying that if certain economic conditions warrant policy harmonization with the government, the central bank may mull taking action.

The March rate-session came after Park Geun-hye took office on Feb. 25 with pledges to support smaller firms and debt-ridden households.

The South Korean economy is likely to grow 2.8 percent this year, underperforming its long-term potential growth of some 3.8 percent. The BOK cited fiscal tightening in advanced economies and the yen's weakness as downside risks to growth.

Finance minister nominee Hyun Oh-seok told a parliamentary confirmation hearing Wednesday that the Korean economy is in "serious" condition, necessitating comprehensive measures to spur growth. Speculation is rampant that the government will draw up supplementary budgets.

Kim earlier said that when monetary and fiscal policies are coordinated, the impact of the policy mix will increase.

But despite some signs of improvements, market players are still betting on a rate cut, claiming that the BOK may lower the borrowing costs after taking into account the government's stimulus package.

"A policy-coordinated rate cut seems likely to come in April as the process for the government reorganization is being delayed," said Shin Dong-su, an analyst at NH Investment & Securities Co.

He said that as the global economy is showing some signs of improvement, it would be difficult for the central bank to cut the key rate twice within this year.

But others said that the BOK is likely to freeze the rate throughout this year as the Korean economy will pick up down the road.

"The government's economic stimulus measures may allow the BOK to hold the key rate steady as the global economy is showing signs of stabilizing," said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities Co.

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http://www.globalpost.com/dispatch/news/yonhap-news-agency/130314/key-rate-march