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Bank of Korea keeps interest rate at 2 percent

Bank of Korea keeps interest rate at 2 percent

South Korea's central bank halted a string of interest rate cuts Thursday, deciding to keep borrowing costs at a record low 2 percent amid efforts to lift Asia's fourth-largest economy out of recession.
The Bank of Korea left its benchmark seven-day repurchase rate unchanged at a regular policy meeting after slashing it six times since Oct. 9 to a series of record lows. A full one-percentage point cut in December was its biggest reduction ever.
In a brief statement, the bank's seven-member monetary policy committee painted a bleak picture of South Korea's slumping economy.
"Domestic economic activity has kept on declining due to the continued decrease in both domestic demand and exports," the committee said. "The downside risk to economic growth is considered to have been greatly heightened by the deepening global economic slump and the international financial market unrest."
But it said that inflation, while recently moving higher due to weakness in the South Korean won, is likely to moderate due to the economic downturn. The bank also said that bank lending to households and small- and medium-sized businesses has increased.
South Korea's export-driven economy has been battered by declines in global consumer demand as a result of the world financial crisis. Exports and industrial output have plunged.
Gross domestic product shrank 3.4 percent in the final quarter of 2008 as manufacturing and exports wilted.
The Bank of Korea, along with other monetary authorities around the world, has aggressively cut rates in response to the slump. South Korea is also suffering from declining consumer spending and fears about weakness in local banks.
South Korea's economy grew 2.5 percent in 2008, its worst performance since an annual contraction of 6.9 percent in 1998 when the country was battling the Asian financial crisis. The government expects the economy to shrink 2 percent in 2009, but private estimates are worse.
A 32.8 percent drop in January exports was the steepest since South Korea began collecting and announcing monthly tallies of exports and imports in 1980.
Still, recent indicators, such as high-tech exports and production, have shown signs of a rebound, according to Citibank Korea economist Oh Suk-tae.
"The bottom line is that (South) Korea's economy has stopped its freefall," Oh said, though he still characterized it as being in "deep recession."


Updated : 2021-02-26 12:36 GMT+08:00