Bullish comments from the Bank of Korea today, even as it kept the 7-day repurchase rate on hold at 2.75 per cent. By the Bank’s own forecasts, consumer price inflation will rise above the 3 per cent target to 3.5-4 per cent this year. South Korea’s central bank surprised markets with a 25 basis point rate rise in mid-January – one of a number of inflation-fighting techniques the Bank has introduced.
Inflation is firmly on the Bank’s radar; the statement leaves no room for doubt. The strength of conviction suggests another rate rise is not far ahead: Read more
Central bankers in Seoul have raised the base rate by 25bp, taking it to 2.75 per cent. While the move was unexpected, it is not surprising. The Bank of Korea has taken numerous measures to combat inflation in recent weeks, even doubling the availability of staple food sources to help contain food price inflation. In December, the country announced plans for a bank levy on foreign-currency debt; the bill, yet to be finalised, could become law in the second half of this year.
In a statement issued with the decision, the Bank’s tone was generally upbeat, but concerns persist around asset prices: Read more
Lower-than-expected growth in Brazil and New Zealand have prompted their central banks to maintain rates; in South Korea, “greatly decreased” inflation motivated the hold decision, in spite of a “continued upward trend” in growth.
Brazil’s monetary policy committee, Copom, kept the Selic rate at 10.75 per cent, hinting that a rate cut might have been on the cards were it not for recent macroprudential policies, whose effects on monetary conditions were yet to be seen. Read more
Seoul raised its base rate 25bp to 2.5 per cent today, citing rising inflation and an appreciating currency, as well as – more positively – continued growth expected in South Korea.
Growth in the country has moderated recently, slowing to 0.7 per cent in the three months to September, from 1.4 per cent in the three months prior. Nonetheless, continued growth is expected, and Goldman Sachs analysts expect the base rate to reach 3.25 per cent by the end of 2011. Read more
South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio.
Such a move could prove significant to the international gold market as Seoul currently only holds about 14 tonnes of the lustrous metal, equal to just 0.2 per cent of its $290bn reserves at current prices. By contrast, Italy and France each hold just under 2,500 tonnes of gold, amounting to more than 65 per cent of their reserves. Read more
Hot money? South Korea isn’t encouraging any more – the central bank on Thursday held its base rate at 2.25 per cent. The decision has surprised Reuters analysts who had expected a 25bp raise.
Bond prices have risen to record highs on the news and the won has also strengthened, though not as much as it would have done had interest rates risen. Read more
South Korea has maintained its base rate at 2.25 per cent, citing “the possibility of heightened volatility of economic activity in major countries”.
The central bank seems happy with continued domestic recovery, reporting buoyant exports and improving labour market conditions. Read more
Ahead of Friday‘s rate-setting meeting, the International Monetary Fund has sharply revised up its forecast for South Korean growth and urged the central bank to start raising rates. Growth for Asia’s fourth-largest economy this year is now forecast at 5.75 per cent, up from 4.5 per cent, Reuters reports:
“In light of the strong economic recovery, a carefully calibrated exit from supportive macroeconomic policies is appropriate,” IMF said in a statement. Read more
Two points stand out from the latest BIS quarterly review.
First, a warning on mismatched maturities. Ingo Fender and Patrick McGuire, of BIS, point out the continued reliance of European banks on wholesale* instruments and FX swaps. Banks forced to roll over short maturity debt risk agreeing new debt on worse terms. The authors point out that if conditions worsen, maturities will become even shorter, exacerbating the problem (p63):
Such funding patterns put a premium on contingency funding arrangements for international banks and underline the need for further diversification in banks’ funding profiles … In particular, they point to potential benefits from improvements to FX swap market infrastructure, such as the use of central counterparties to allow multilateral netting and more efficient collateral management
Second, Naohiko Baba (BoJ) and Ilhyock Shim (BIS) find Read more
Price stability is no longer a sufficient target for central bank policy, according to South Korean central bank governor Kim Choong-soo. “Perceptions as to the desirable role of the central bank are now shifting greatly,” he said at a speech commemorating the 60th anniversary of the bank.
Changes ahead for the Bank include expanding its remit to include financial stability; fostering closer ties with other central banks; and calling in consultants to help with the restructure. A key task was to work out how the goal of financial stability would fit with the “prime” goal of price stability. Read more
Year-on-year producer price inflation in South Korea hit 4.6 per cent in May, up from 3.2 per cent the month before. The central bank runs an inflation targeting policy, focused on consumer rather than producer prices, of 3 per cent +/- 1 per cent tolerance.
Producer prices are often an early indication of consumer prices. In this case, however, the change was driven largely by base effects (i.e. this time last year, prices fell 0.8 per cent month-to-month). The month-to-month price rise in Korea during May was only 0.5 per cent, actually a reduction on the month before.
Watch out for greater agreement between the government and central bank of South Korea. The President has just named Kim Choong Soo governor of the central bank, to succeed Lee Seong Tae when his tenure expires at the end of the month. The nomination is subject to cabinet approval on March 23.
Mr Kim is currently envoy to the Paris-based Organization for Economic Cooperation and Development, according to Bloomberg. Mr Kim “sounds far less hawkish than the current governor, based on my impressions of his reported interviews and his career,” Lim Ji Won, a senior economist at JPMorgan Chase told Bloomberg. “This suggests the possibility that the new governor and government are likely to speak in one voice, at least for the time being.” Read more
If ever there was a night to give fodder to critics of central bank politicisation, it was last evening.
South Korea maintained its interest rate at 2 per cent, after pressure from the government on outgoing central bank president Lee Seong-tae.
Then the Argentine Senate failed to achieve quorum today to debate the appointment of the new president of the Bank of Argentina. Read more
The governor of Korea’s central bank has said he thinks a rate rise “will happen in the not too distant future”.
Bank of Korea Governor Lee Seong-tae told a parliamentary committee that the bank would have to start raising interest rates once the private sector’s “self-driven recovery” was confirmed. Read more
Korea’s central bank has kept the seven-day repurchase rate at 2 per cent, in spite of rising inflation. Citing uncertainty in economic growth – “due to the risk of government debt crises in some European countries” – the Bank of Korea said it would retain its accommodative stance. The central bank said it expected inflation to stabilise and added the “upward trend of real estate prices ha[d] been blunted”.
Governor Lee Seong Tae has likely come under pressure to keep rates on hold from the Korean government, which is facing regional elections. President Lee Myung Bak has put jobs at the top of the political agenda, with unemployment in January rising to 4.8 per cent – a ten year high.
South Korea’s central bank today left its policy interest rate unchanged at a record low of 2 per cent to “help sustain the trend of recovery in economic activity”.
The bank said that consumer price inflation was accelerating, driven by fuel prices and bad weather, and that both domestic and export markets were improving. However, there still “remains uncertainty as to the economic growth path due to the risk of delay in a full-fledged recovery of the major advanced economies”. Read more
South Korea has already recovered the remaining $450m USD loans extended to local banks, a day after the Fed announced closure of its temporary global liquidity-providing swap scheme by February 1, 2010.
Including the $450m, the BOK has recovered the full amount from the swap arrangement, which was worth $16.35bn. The Fed originally set a $30bn USD currency swap limit with the Bank of Korea on October 30, 2008, and has extended the deadline twice. BOK officials say the agreement helped to stabilise the local currency but that its closure will have “little impact” on Korean financial markets
The central bank of South Korea has today raised its 2010 growth forecast to 4.6 per cent from its 3.6 per cent July estimate, making an interest rate rise more likely. Rates are currently at a record low of 2 per cent. Read more
The Bank of Korea has left the seven-day repurchase rate at 2 per cent for the tenth consecutive month as expected, but the central bank governor said the central bank shouldn’t wait too long before gradually raising rates. Lee Seong Tae said that maintaining borrowing costs at the current level a year from now would be “unimaginable” if the economy kept growing more than one per cent each quarter (or about five per cent annually). South Korea’s GDP returned to positive territory in Q3, growing 0.9 per cent in the quarter. The International Monetary Fund this week raised its forecast for gross domestic product growth in 2010 to 4.5 percent from 3.6 percent.