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The Bank of Korea kept interest rates at 2.00% for the 11th straight meeting

Fri, Jan 8 2010, 04:00 GMT
by ecPulse.com analysis team

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The South Korea Central Bank decided today to keep interest rates steady at the low record of 2.00% for the 11th straight meeting to meet market expectations. The bank said that low borrowing costs are helping to sustain economic recovery from the worst recession since WWII, after the economy avoided technical recession.

Asia's fourth largest economy found its way out of the worst financial crisis since the great depression, having exports that account for more than half of the GDP, rising to the highest level in 17 months in December, while manufacturing output continued to rebound adding to signs the economy is recovering.

However, monetary policy makers in South Korea said that the bank is monitoring the economic situation closely to avoid the risks of a prolonged accommodative monetary policy, keeping in mind that the central bank slashed its benchmark interest rates by 3.25 basis points between November 2008 and February 2009.

The central bank is seeking a strong recovery based on solid exports that account for about 60% of the GDP, and it showed clear signs of improvement in the last period backed by increasing global demand, especially from China that is leading recovery in the Asian region.

Policy makers are delaying raising interest rates to avoid an increase in the won's value that is corroding corporate earnings and affecting exports negatively, worth mentioning that the won gained 8% against its American counterpart in 2009, making Korean products lose a competitive advantage.

Moreover, Governor Lee Seong Tea said in December that the central bank shouldn’t wait long before raising borrowing costs gradually to support recovery. He said that the bank will adjust its policy "at an appropriate pace", taking into consideration the latest updates in financial and economic conditions.

President Lee Myung Bak expected gross domestic product to grow more than 5% in 2010, after the government said it will allocate 70% of its total expenditure to the first half of this year, in order to support recovery.

On the other hand, the Korean Finance Minister Yoon Jeung Hyun said it is too early to end the exceptional monetary policy and withdraw exceptional measures, as risks remain founded.

Yet, the central bank raised its inflation target range for the next three years, as the goal for 2010 to 2012 will be 3% plus or minus 1%, and the current target is 3% plus or minus 0.5%.

Published on  Fri, Jan 8 2010, 04:00 GMT