Tags: AS | SKorea | Economy

South Korean Finance Chief Warns Against Rate Increase

Monday, 08 Mar 2010 09:25 AM

South Korea's finance minister warned Monday the country's economic recovery remains too fragile to withstand an increase in borrowing costs from a record low, cautioning the central bank just days ahead of a rate-setting policy meeting.

"It is the view of the Korean government that we do not believe it is the right time to raise rates yet," Minister of Strategy and Finance Yoon Jeung-hyun said.

Yoon, speaking to journalists from foreign media organizations, cited worries over what he called the "self sustainability" of the country's private sector, a spike in unemployment and "significant" household debt levels.

The South Korean government has repeatedly expressed concerns about the risks of a too-early exit by the Bank of Korea from a series of rate cuts from late 2008 that have lowered borrowing costs to a record low 2 percent.

In January, the Ministry of Strategy and Finance exercised its right to sit in on a central bank policy meeting for the first time in a decade, sending a top official as an observer. The ministry said at the time that it respects the bank's independence but emphasized "the need for policy coordination between the government and central bank during times of economic crisis."

Yoon expressed confidence the bank's monetary policy committee would make a "reasonable decision on how to gauge rates going forward" and emphasized the government has no intention to interfere.

"We do want to respect that this is a decision that the committee has and we want to respect their independence in making their decisions," Yoon said.

The central bank took unprecedented monetary easing measures to battle the impact of the financial turmoil that erupted after the collapse of U.S. investment bank Lehman Brothers Holdings in September 2008.

The bank has left the rate unchanged since March 2009 as the economy stabilized and recovered. It lowered the rate to its current level in February last year. The monetary policy committee next meets Thursday.

South Korea's economic growth slowed in the fourth quarter of 2009 on weakness in manufacturing, construction and exports, a sign that the country's strong recovery from the global meltdown was losing steam.

Gross domestic product grew 0.2 percent in the three months ended Dec. 31 compared with the previous quarter. South Korea's economy, Asia's fourth largest, had expanded 3.2 percent in the third quarter, its strongest performance in more than seven years.

South Korea's jobless rate surged to a nine-year high of 5 percent in January as the number of people seeking work increased.

From late 2008 through 2009, the South Korean government pumped nearly 50 trillion won ($44 billion) of stimulus into the economy in the form of extra spending and tax cuts as authorities worldwide took similar measures to revive growth.

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South Korea's finance minister warned Monday the country's economic recovery remains too fragile to withstand an increase in borrowing costs from a record low, cautioning the central bank just days ahead of a rate-setting policy meeting. It is the view of the Korean...
AS,SKorea,Economy
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2010-25-08
Monday, 08 Mar 2010 09:25 AM
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