May 06 -- South Korea's central bank may keep interest rates unchanged
at an almost seven-year high after inflation accelerated and overseas
****pments surged.
Governor Lee Seong Tae will leave the seven-day repurchase rate at 5
percent on May 8, according to 13 of 20 economists surveyed by
Bloomberg. Seven expect a cut. Policy makers last adjusted the
benchmark with a quarter-point increase in August.
Rising food and fuel costs drove the biggest increase in South Korean
consumer prices in almost four years in April and caused the sixth
consecutive monthly breach of the central bank's inflation target. The
re****t, combined with another that showed ex****ts expanded by the most
since 2004, may prompt Lee to resist pressure from the government to
lower borrowing costs.
``Robust external-demand growth and high inflation pressure in April
reinforces our view the monetary policy committee will not likely cut
the policy rate at the May 8 meeting, despite apparent political
pressure,'' Eva Yi, a Hong Kong-based economist at Goldman Sachs Group
Inc., wrote in a note.
Finance Minister Kang Man Soo said last month the economy has entered
a ``downturn,'' and also emphasized that South Korea's interest rates
are higher than those of many other nations, including the U.S.
The Federal Reserve's benchmark rate is 2 percent, while the European
Central Bank's is 4 percent and Japan's is 0.5 percent.
Kang said economic growth could fall short of the government's 6
percent target this year. He's seeking to boost public spending by 4.9
trillion won ($4.8 billion) to spur Asia's fourth-largest economy,
which expanded 5 percent in 2007.
Government Pressure
``The government has been making pessimistic comments on the economy
lately, and that is probably a way to justify the need'' they see for
a rate cut, said Kim Jae Eun, an economist at Hana Daetoo Securities
Co. in Seoul. ``The central bank will feel more pressure.''
There's evidence domestic demand is cooling in South Korea.
The economy grew at the slowest pace in more than three years last
quarter on weaker consumer and business spending. An index of leading
economic indicators fell for a third month in March and the number of
new hires declined to a three-year low.
Still, Governor Lee may not join counterparts in the U.S., Canada and
England who have all reduced borrowing costs this year amid a global
credit-market crunch.
The Bank of Korea is concerned that inflation, at 4.1 percent in
April, may accelerate. It aims to keep annual consumer-price increases
between 2.5 percent and 3.5 percent, on average, for the three years
to 2009.
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