south korea

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

Simone Baribeau

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.