Published : Aug. 10, 2011 - 19:30
The possibility that Korea will fail to meet its inflation target of 4 percent for 2011 increased as the European debt crisis continued to hit local financial markets.
The Bank of Korea, which has pushed for tightening monetary policies in an attempt to curb consumer prices, is unlikely to raise the monthly benchmark interest rate at its committee meeting slated for Thursday.
Bank of Korea Gov. Kim Choong-soo is set to hold the rate-setting meeting on Thursday amid growing worries over the country’s rising inflation. (Bloomberg)
Despite high consumer and producer prices, the central bank will keep the rate untouched this month, a majority of analysts predicted amid woes in Europe and the U.S.
Though the BOK revised upward its 2011 inflation target from 3 percent to 4 percent, many analysts forecast it would be hard to achieve the new goal.
Further, there are predictions that consumer prices will approach 5 percent inflation during the second half of the year.
An official of the National Statistical Office was quoted by a newspaper as saying, “Due to the hike in public service fees, consumer prices could possibly grow by 5 percent in August.”
The NSO has reported that consumer prices climbed by 4.7 percent in July from a year earlier.
The growth of consumer prices remained at 4 percent for the seventh consecutive month this year to record 4.4 percent on average.
For the goal of 4 percent, the nation should see consumer prices growth over the next five months stay at an average of less than 3.7 percent.
According to the BOK, producer prices rose by 6.5 percent in July on a year-on-year basis, posting the highest growth in three months since 6.8 percent in April.
A Samsung Securities analyst said the 4 percent goal would be very hard to achieve, citing factors fanning inflationary pressures such as price-hikes for Chuseok, Korea’s thanksgiving, holidays.
He also cited the long rainy spell for this summer as another impediment to the central bank’s target.
Meanwhile, Hyundai Securities is not ruling out the possibility of a rate-hike. “The situation surrounding the global markets is certainly pushing the BOK to freeze the benchmark rate.”
If the BOK chooses a hike, this would mean the bank views inflation as more critical than global uncertainties.
Last December, the BOK projected prices would rise 3.5 percent in 2011.
Last April, the International Monetary Fund forecast 4.5 percent growth in Korea’s consumer prices, up from an earlier forecast of 3.4 percent.
“The BOK has already been severely criticized for failing to tame inflationary pressures by missing the timing of rate hikes for several times,” a Woori Futures analyst said.
By Kim Yon-se (kys@heraldcorp.com)