Roundup: S.Korea indicates interest rate hike on positive economic outlook

0 Comment(s)Print E-mail Xinhua, July 15, 2021
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SEOUL, July 15 (Xinhua) -- South Korea's central bank indicated an interest rate hike Thursday, based on its positive economic outlook that offset worry about the recent COVID-19 resurgence here.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other monetary policy board members left the benchmark seven-day repurchase rate unchanged at an all-time low of 0.50 percent. The key rate has been frozen since May last year.

It was in line with market expectations. According to a Korea Financial Investment Association (KFIA) survey of 100 fixed-income experts, 89 predicted a rate freeze.

The rate freeze decision, however, was not unanimous as one member claimed a 25-basis-point rate hike. For the past year, the policy rate has stood pat via a unanimous decision.

The BOK said in a statement that export and investment will sustain buoyancy while private consumption is forecast to temporarily weaken affected by the COVID-19 resurgence.

The central bank noted that the consumption will return to the path of recovery supported by the execution of the government's supplementary budget in the second half, expecting this year's gross domestic product (GDP) growth to be around 4 percent consisted with the economic outlook unveiled in May.

The pandemic resurged here in recent days. In the latest tally, the country reported 1,600 more cases of COVID-19 for the past 24 hours, raising the total number of infections to 173,511.

It marked the country's second-highest daily caseload, staying above 1,000 for the ninth consecutive day.

The government said it will maintain the toughest social-distancing schemes in the Seoul metropolitan area for two weeks until July 25.

The tightened quarantine measures are forecast to roil the services industry, especially the eatery and lodging and the wholesale and retail sectors, as people were discouraged from outside activities such as eating-out and shopping in offline stores.

Governor Lee told an online press conference after the rate-setting meeting that the rate freeze decision was made to wait and see the economic effect of the resurgence, although the economy continued to recover on the improved export, investment and consumption.

Lee forecast that the recovery momentum would not be damaged significantly if the resurgence is alleviated by the quarantine measures and the increased vaccination while the economy is supported by the extra budget.

He noted that the bank would review during the next monetary policy meeting in August whether it is appropriate to adjust the accommodative stance of monetary policy.

Cho Jong-hyun, a fixed-income strategist at Shinhan Investment Corp., said the central bank confirmed its hawkish stance over monetary policy given the BOK statement and the governor's press conference.

Cho expected the BOK to hike rates in October, but he said the possibility cannot be ruled out for a hike in August.

Recent economic indicators showed signs of recovery. Export, which accounts for about half of the South Korean economy, soared 39.7 percent in June from a year earlier, keeping an upward trend for the eighth consecutive month.

For the first six months of this year, the outbound shipment topped 300 billion U.S. dollars for the first time due to the global demand recovery from the pandemic shock.

The number of jobs increased 582,000 in June from a year earlier, continuing to grow for four months in a row.

The seasonally-adjusted production in all industries, which exclude the agricultural, forestry and fishery sector, rose 0.1 percent in May from the previous month.

The industrial output expanded 2.0 percent in February and 0.9 percent in March respectively, before slumping 1.2 percent in April.

Retail sale, which reflects private consumption, fell 1.8 percent in May from a month earlier, but consumer sentiment improved for six months through June. Enditem

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