The Bank of Korea’s monetary policy committee Thursday left the benchmark interest rate for April untouched at 2.75 percent, marking a freeze for the sixth consecutive month despite its forecast of the nation’s low economic growth for this year.
The central bank said gross domestic product growth is projected to stay at 2.6 percent this year, lower than its 2.8 percent forecast three months ago.
Some Finance Ministry officials had hoped ― or predicted ― that the BOK would slash the rate in consideration of the low-growth period. They had highlighted the Park Geun-hye administration’s strong commitment to boosting the economy.
Theoretically, a rate cut aimed at vitalizing private consumption could coincide with the central bank’s revised GDP growth forecast.
But at a news briefing following the rate-setting, BOK Gov. Kim Choong-soo said “the monetary policy is not a panacea. When comparing gains and losses, (we’ve concluded that) a freeze would secure more gains than losses.”
Bank of Korea Gov. Kim Choong-soo (Yonhap News)
Kim also argued that there were worries about inflationary pressures in the coming months, claiming that a rate cut could fan consumer prices. The BOK lowered its consumer inflation forecast for this year to 2.3 percent from an earlier projection of 2.5 percent.
“Growth in consumer prices remains below 1.5 percent. However, it is expected to surpass 3 percent during the second half,” Kim said.
He added that external pressure for a rate cut from the Finance Ministry was not a significant factor for setting the benchmark rate.
“Aside from the inflationary pressures, the committee takes foreign exchange rates and household debts into consideration when it sets the rates,” he said.
Meanwhile, some Finance Ministry officials expressed uneasiness over the central bank's decision.
“Based on past rate-settings over the past few years, the BOK sometimes upsets the market’s dominant forecast,” a ministry official said, asking not to be named.
“For several cases, rate cuts or rate hikes were conducted as a surprise policy to the market,” he said.
An official expressed his perplexity, saying that it seems that the bank was seeking to have a certain impact on the financial markets, while at least 50 percent of bond traders bet on a rate cut this time.
A research analyst said the bank has already missed the timing to cut the rate. “Monetary policies should be preemptive. Belated actions may be linked to continuous policy failure.”
Deputy Prime Minister and Finance Minister Hyun Oh-seok expressed his concern over the low-growth era at home and abroad during his meeting with reporters a day earlier.
“The low-growth era is projected to go on for at least the next five years,” he said.
The minister declined to comment on the April benchmark interest rate both on Wednesday and Thursday.
According to the BOK, international economists predict the global economic growth will post 3.3 percent this year, higher than the 2.6 percent estimate for South Korea.
By Kim Yon-se (
kys@heraldcorp.com)