FTimes- Xinhua Report Oct. 15
South Korea's central bank on Thursday decided to freeze its benchmark interest rate at a record low, keeping a wait-and-see stance for four straight months as the U.S. Federal Reserve is expected to raise its policy rate within a couple of months.
Bank of Governor (BOK) Lee Ju-yeol and six other monetary policy board members agreed to keep the seven-day repurchase rate on hold at an all-time low of 1.5 percent. They cut it by a quarter percentage point in March and June respectively.
Despite concerns about lackluster economic data at home and economic slowdown abroad, experts predicted the rate freeze by the BOK ahead of the expected rate hike in the United States.
According to a Korea Financial Investment Association survey of 113 fixed-income analysts, 85 percent expected a BOK rate freeze this month. The remaining 15 percent projected a rate cut on worries over the economic slump at home and abroad.
Exports, which account for around half of the economy, continued to decline for nine months through September when the outbound shipments tumbled 8.3 percent compared with a year earlier.
Amid the slowing exports, production in the mining and manufacturing sectors inched up 0.3 percent in August from a year earlier. Manufacturers posted an average factory utilization rate of 74.3 percent in August, lower than an average of 76.1 percent tallied in 2014.
Further rate cuts can weaken the South Korean currency to the U.S. dollar, fuelling price competitiveness of South Korean exporters and increasing corporate earnings overseas when repatriated.
However, the BOK refrained from altering the rate as the U.S. Fed is widely expected to hike rates in early 2016 at the latest. The contrast in monetary policies between Seoul and Washington could trigger foreign capital exodus from the South Korean financial market.
Fed Vice Chairman Stanley Fischer said the Fed's first rate increase this year would be "an expectation, not a commitment." His comments boosted expectations for the delayed monetary tightening, but widespread forecast remained for the rate hike within a couple of months. Governor Lee sought to relieve such market expectations for further rate cuts in South Korea, saying last Monday during the parliamentary audit that the economy's third-quarter growth was in line with the economic forecast of the BOK.
Asked about possibilities for the BOK to cut rates further amid the expected delay in the U.S. rate hike, Governor Lee said he had a different idea from such expectations, showing his hawkish stance on monetary policy.
A surge in household debts prevented the BOK from considering further rate cuts. Debts owed by households to deposit takers jumped 9.8 trillion won (8.5 billion U.S. dollars) in August from a month earlier, the second biggest monthly increase. The largest increase was 10.1 trillion won tallied in April, one month after the BOK rate cut.
Private consumption also showed signs of recovery. retail sales, which reflect consumer spending, increased 1.8 percent in August from a year earlier after growing 2.1 percent the previous month.
Consumer sentiment index, which measures the outlook among consumers over economic conditions, inched up 1 point from a month earlier to 103 in September. The reading above 100 means optimists surpassed pessimist.
Sales in department stores soared 14.1 percent in September from a year earlier, after rising 1.2 percent in August. Discount outlets revenue expanded 10 percent last month after falling 4.8 percent the previous month.
Domestic car sales advanced 15.5 percent in September on a yearly basis, and credit card usage picked up 14.8 percent last month. Gasoline and diesel sales gained 6.2 percent last month.
