(LEAD) BOK freezes key rate at 2.75%

November 10, 2012 12:23 am 

By Kim Soo-yeon

SEOUL, Nov. 9 — South Korea's central bank froze the key interest rate Friday in an apparent bid to assess the impact of October's rate cut on the slowing local economy amid the global downturn.

As widely expected, Bank of Korea (BOK) Gov. Kim Choong-soo and his six fellow policymakers left the benchmark 7-day repo rate unchanged at 2.75 percent for November following a quarter-point rate cut the previous month. The BOK also lowered the rate in July.

The BOK said downside risks to growth are deemed large due mainly to the eurozone debt crisis and a stalemate over coping with looming automatic tax hikes and spending cuts in the U.S.

"But the Korean economy is likely to see some moderate improvement as the global economy will recover on the back of additional quantitative easing in major advanced economies and China's stimulus measures," it added.

Analysts said that the BOK opted for the freeze this month, as it would need the time to gauge the effects of the October rate cut on the slowing economy and the bank may resume the easing cycle in early next year.

"There are some signs of marginal recovery in the U.S. and China. But the key rate is likely to stay at the current level for the time being as the Korean economy is losing ground," said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities Co.

"The possibility of a rate cut in the first quarter of next year lingers, given the deadlock over the U.S. fiscal cliff and a potential growth outlook downgrade for the Korean economy."

The BOK's move came on the heels of rate freezes made by central banks in Europe, Australia and Indonesia in November, as lingering economic uncertainty is conflicting with some stabilizing signs of the global economy.

In particular, economic policy uncertainty at home and abroad persists, largely stemming from political events. South Korea's presidential election is scheduled for December, along with incoming new governments in the U.S. and China.

Recent economic data showed factory output and exports posted slight improvements, but many analysts said it is too early to say the local economy is rebounding.

Industrial output posted an on-month gain in September, snapping the third-straight run of contraction. Exports, which account for about 50 percent of the GDP, grew 1.2 percent on-year in October, the first gain in four months.

The BOK earlier said the quarterly growth is likely to reach less than 1 percent until the first half of next year. It cut the 2012 and 2013 growth estimates to 2.4 percent and 3.2 percent, respectively.(PNA/Yonhap)

LOR/JNC

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