|
|
|
(2nd LD) BOK makes emergency rate cut to 4.25 pct
By Kim Soo-yeon
SEOUL, Oct. 27 (Yonhap) -- South Korea's central bank slashed its key interest rate on Monday by 0.75 percentage point, its largest cut ever, in a bid to keep global financial turmoil from sharply slowing the real economy.
In a blitzkrieg move, Bank of Korea (BOK) Gov. Lee Seong-tae and his six fellow policymakers lowered the benchmark 7-day repurchase agreement rate to 4.25 percent at an unscheduled policy meeting. It is the first time for the BOK to trim the rate by 0.75 percentage point.
The rate cut came less than three weeks after the BOK made a rate cut on Oct. 9 in a concerted effort to soothe global financial turmoil, the first reduction since November 2004.
The move came as South Korea's key stock index on Friday plummeted 10.57 percent to 938.75, falling below the psychologically important 1,000-point mark for the first time in 40 months. The Korean currency tumbled to an over 10-year low to close at 1,422 won to the U.S. dollar on the same day.
"The BOK will conduct monetary policy in such a way to keep financial market jitters from severely dampening the real economy, while keeping tabs on inflationary pressure," the BOK said in a statement.
Economists say that the emergency rate cut reflected the central bank's all-out efforts to keep the repercussions of the current global credit crunch from spilling over to the real economy.
"The larger-than-expected rate cut came as a surprise. The BOK seemed to be making an effort to swiftly stabilize the markets with an aggressive rate cut," said Kim Jae-eun, an economist at Hana Daetoo Securities Co.
The local financial markets have been rattled on concerns that the recently-announced sweeping measures to shore up the banking and construction sectors may not be strong enough to restore confidence.
According to the BOK, the South Korean economy grew 0.6 percent in the third quarter from three months earlier, marking the slowest growth in four years, due to sluggish domestic demand and lagging export growth.
South Korean households and smaller firms, whose debts are piling up, have been increasingly cutting their spending amid a slowing economy and the global financial meltdown.
Asia's fourth-largest economy is expected to lose steam further next year as exports, which account for about 50 percent of the economy, are likely to slow down amid a global economic downturn.
Gov. Lee told lawmakers on Thursday that it would be difficult for the local economy to make 4 percent growth next year although it may see growth in the 3-percent range. He expected that exports would not see double-digit growth in 2009. The Korean economy expanded 5 percent in 2007.
Experts say recent retreats in oil prices seemed to help ease burdens of the BOK in controlling inflation. Crude oil prices have been heading downward since peaking at almost $150 per barrel in July. South Korea, the world's fifth-largest crude buyer, relies entirely on imports for its oil needs.
South Korea's consumer prices climbed 5.1 percent on-year in September, slowing from a 5.6 percent gain in August, as oil and commodity prices showed signs of stabilization. They breached the BOK's target range of 2.5-3.5 percent for the 10th straight month.
"If the foreign exchange market stabilizes and the downward path of oil prices continues, the growth of inflation is expected to ease toward next year," Gov. Lee said after the rate-setting meeting in early October.
Along with the rate reduction, the BOK unveiled a set of measures to stabilize the market and to help provide more liquidity to the financial system.
The BOK lowered the interest on its low-rate loans to commercial lenders by 0.75 percentage point to 2.5 percent. The central bank last week raised the cap on such loans for the first time in seven years in a bid to help smaller firms weather the current cash crunch.
The central bank also said it plans to purchase bonds sold by commercial lenders through repurchase agreement operations in a bid to help them to secure Korean won liquidity.
The BOK said it will buy bank bonds and some special debts to help provide much-needed liquidity. Currently, the BOK's repurchase agreement deals cover Treasuries, securities whose repayment is guaranteed by the government and currency stabilization bonds.
The move came as local lenders are suffering from cash shortages as they have faced troubles in raising funds by selling certificates of deposit or debts or rolling over debts amid the global financial turmoil.
The BOK also softened restrictions on the use of foreign currency loans to exporting firms in an effort to help ease their losses from the won's plunge against the U.S. dollar.
The central bank said it will allow local banks to extend foreign currency loans to exporters when they settle currency options. Companies will also get an additional one-year rollover on foreign currency loans borrowed for use as working capital.
On Oct. 19, the government unveiled a US$130 billion plan aimed at giving state-guarantees for banks' foreign debts and providing a much-needed liquidity injection. The package accounts for roughly 15 percent of the country's economy. It also plans to spend around 9 trillion won ($6.25 billion) to boost the country's sluggish construction sector and revive the broader economy.
South Korea is also considering cutting additional taxes and increasing its fiscal spending in a move to bolster the sagging economy.
sooyeon@yna.co.kr
(END)
|
| |
|
|
Home
