South Korea’s central bank halted a string of interest rate cuts yesterday, 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 1 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 because of 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 GDP shrank 3.4 percent in the final quarter of last year as manufacturing and exports wilted. The economy grew 2.5 percent last year, 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 this year, but private estimates expect it will shrink more.
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