The Central Bank of South Korea decided today to keep interest rates unchanged for the eighth consecutive meeting to remain at the low record of 2.00%. This came amid rising local currency value that appeared to be the best performing Asian currency against the dollar which is affecting shipments badly.

The central bank governor Lee Seong Tae and his colleagues cut the nation's benchmark by 3.25% between October last year and February this year to stimulate economic growth and boost demand amid deteriorating economic conditions around the world.

Low interest rates spurred demand for borrowing especially home loans, having in mind that lending to households increased for the seventh straight month in August. Business conditions improved and production rebounded which helped the economy to find its way out of the worst recession since World War II.

Moreover, keeping interest rates unchanged came along with rising currency value as we saw that the won became the best performing Asian currency against the dollar as it gained 8% against its American counterpart in the second quarter that is pressuring shipments and making South Korean products less competitive.

Ahn Byung Chan the director general at the South Korean Central Bank said that the won's rally against major currencies is "excessive", while he added that authorities will have to interfere to stop the won's gains. Chan also added that the Korean government is also uncomfortable with the rising currency value.

Nevertheless, the Finance Minister Yoon Jeung Hyun warned from unwinding the exceptional monetary policy too soon as it would hinder the economy from realizing full recovery and it might fall into a double dip recession.

In case the South Korean authorities managed to control the won's rally against other currencies, we may see the Central Bank raising interest rates from its low record, worth mentioning that governor Lee said last month that he may raise borrowing costs to stop the increase in property prices and mortgage lending that came along with increasing demand.

The Korean economy has been showing sings of recovery in the last few months as the government's stimulus plan of 67 trillion won managed to support economic growth, noteworthy that the stimulus plan focused on pumping liquidity in the business sector and providing cash handouts for consumers.

The South Korean economy is on track and it is one of the fastest emerging economies in the Asian region as it expanded 2.6% in the second quarter, the fastest pace in about six years; after it managed to avoid technical recession when it grew 0.1% in the first quarter. Yet, interest rates are likely to be lifted along with stabilizing currency value.

Moving to Japan, monthly machine orders inclined by 0.5% during August compared with a previous decline by 9.3%, while it was forecasted to climb 2.1%. Machine orders fell 26.5% in August from a year earlier coming after a drop by 34.8%, while forecasts referred to -25.4%.

Recovering demand for Japanese products helped industrial production to rebound recently, while manufacturers are still planning to cut costs and shut down factories and production lines hoping to turn back to profitability, worth mentioning that the Tankan survey last week showed that companies are planning to cut investments by 10.8%.