S Korea mulls over gradual interest rate hike: BOK

Updated: 2009-12-10 15:40

SEOUL: South Korea is mulling over the timing of a possible interest rate hike as the economy is emerging out of the recession, the chief of the nation's central bank said on Thursday.

"We will have to contemplate on the timing (of an interest rate hike), taking the economic condition and inflation into account down the road,"Bank of Korea (BOK) Governor Lee Seong-tae said at a press conference held after the bank's monthly policy meeting.

Earlier in the day, the BOK held its monthly policy meeting where they decided to freeze the nation's benchmark seven-day repo rate at a record low of 2 percent for the tenth consecutive month.

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The BOK also reiterated that it will maintain the current accommodating monetary policy for the time being.

"As we could not overlook uncertainty factors lingering in the domestic and global markets, we have reached such a decision,"Lee said, explaining the background of the rate freeze.

The governor, however, said that the interest rate at the current level is too low, considering the economic growth is forecasted to reach around 5 percent next year.

"The growth outlook for next year mostly hovers around 4 to 5 percent, and the current inflation rate stays at 2.4 percent, while the expected inflation rate exceeds 3 percent. Considering such data, a key rate at 2 percent can be considered severely low," Lee said.

"Although we did say our monetary policy will be focused on bolstering the economy, it does not mean that the interest rate will not move at all,"the governor said, adding that a "gradual" process of normalization is in need.

The remarks came amid a heated controversy over whether and when the BOK should revise up the nation's key interest rate.

Local experts are currently divided over the timing of a possible interest hike, with some claiming it should come in the first quarter of 2010, while others saying it should be delayed until the first half of next year, local media said.

Thanks to the BOK's rate slash by a total of 3.25 percentage points between October, 2008 and February, 2009 the South Korean economy was pulled out of the recession at one of the fastest rate in the world.