June 13, 2014 11:24
The Bank of Korea on Thursday froze interest rates for the 13th consecutive month.
The last time the BOK cut the key interest rate was a quarter percentage point in May last year, and since then it has been stuck at 2.5 percent.
BOK Governor Lee Ju-yeol said interest rates are at a level that "support economic recovery" and hinted at a hike over the long term.
Some economists worry that is too optimistic. They point out that the domestic economic recovery is taking longer than expected, while the impact of the April 16 ferry disaster has dampened private consumption.
The Ministry of Strategy and Finance has already warned that domestic consumption will have been even slower in the second quarter than in the first, and job growth was capped at only 410,000 in May, the lowest in 10 months.
Consumer prices are growing at such a slow pace that economists are starting to fear deflation, while the strengthening won has begun to cut into earnings at exporters.
Central banks in the U.S., Europe, Japan and elsewhere are cutting interest rates to stimulate growth, but the BOK is going in the opposite direction.
A former government official said, "Consumer prices grew only in the one-percent range for more than a year and a half, which is beyond the BOK's target" of 2.5-3.5 percent, "while the influx of foreign capital into the country has led to the won strengthening by more than W60 over the past three months. It's frustrating that the BOK is just standing on the sidelines."
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