South Korea’s central bank kept interest rates on hold as officials monitor the won’s gains against the yen and look ahead to policy changes after South Korean President-elect Park Geun-hye takes office on Feb 25.
Bank of Korea Governor Kim Choong-soo and his board kept the benchmark seven-day repurchase rate at 2.75 percent after a 25 basis point cut in October last year, the central bank said in a statement in Seoul yesterday.
For a second month, the decision was not unanimous. Fourteen of 15 economists surveyed by Bloomberg News predicted the decision and one forecast a cut.
Japan’s “expansionary” policies and fiscal tightening in advanced nations are among risks for a South Korean economy that is showing signs of gradual improvement, the central bank said.
The frontloading of government spending in the first half is already giving growth a boost and Deutsche Bank AG says a supplementary budget may be announced by Park’s administration next month.
The central bank may “decide in March to see if fiscal stimulus is sufficient in terms of size and scope to reduce the level of uncertainty in the economy,” said Wai Ho-leong, a senior regional economist at Barclays Capital in Singapore.
Commenting on currencies ahead of a meeting of G20 finance officials in Moscow, Kim told reporters that it is “most desirable” for foreign exchange rates to be set by market fundamentals.
While the global currency debate and fiscal problems in advanced economies point to risks for South Korea, Kim said he does not believe they will materialize.
The governor said that the currency is an important consideration in interest rate decisions, without being the determining factor.
As Japanese policy makers defend their efforts to counter deflation and spur growth, former Japanese Ministry of Finance official Eisuke Sakakibara took a different view on Wednesday, saying that his nation is hurting trading partners by weakening the yen.
“Guiding the yen lower is a policy that punishes neighboring nations,” Sakakibara, 71, said in an interview in Tokyo.
Impressions overseas that Japan is trying to orchestrate further declines in the yen mean that “it will be criticized by the G7, as well as the G20,” he said.
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