Freeze Call Rate in Current Level, 5%

Yesterday, the Bank of Korea (BOK) decided to maintain the one-day call rate at its current level of annual 5 percent at the Monetary Policy Committee (MPC). BOK Gov. Chon Chol-Hwan in a press conference after MPC meeting, told that “While rate of consumer inflation rate shows a upward tendency by 4.6 percent thus far this year, the consumption and production are recovering. So, BOK decided to retain the interest rate in order to back up the economic recovery by lowering financial burden and improving the corporate’ funding condition.”

Gov. Chon hinted that the current interest rate will be maintained for a while, saying “the US Federal Reserve Bureau is predicted to cut the interest rate again. But even if the interest rate is cut down, Korea’s real interest rate is lower than the interest rate of the U. S.” In particular, Gov. Chon told that the BOK will try to prevent the recent upturn in consumer inflation from stirring up the public expectations for inflation. And he predicted that the recovery of Korea economy will be accelerated if the U. S. economy grows and if the Japanese economy is able to come out of the slump at the second half of this year. And consumer prices are also expected to go down to 3 percent level, halting its upward tendency.

Meanwhile, Gov. Chon turned down the assertion that Korea’s economy is showing a sign of stagflation-a economic slump with sharp inflation, adding “the current economic slowdown is just a temporary fluctuation in the business cycle, not a stagflation.”

Lee Heon-Jin mungchii@donga.com