Call Rate 0.25% Cut

The Monetary Policy Committee (MPC) decided yesterday to lower the call rate from 5.0 percent to 4.75 percent, down 0.25 percent. By the MPC`s decision, the call rate falls under 5 percent for the first time during the past two years and two months since May 1999.

The MPC made a decision of call rate cut by the vote after the three-hour long heated debate including one-time suspension, in which both the pro-maintenance group and the pro-cut group struck fast to their respective opinions. It is for the first time during the current regime that the interest rate was decided by the vote in the MPC.

According to the report, the Bank of Korea`s Gov. Chon Chol-Hwan played the leading role in the rate reduction.

Gov. Chon announced that ``the committee decided on the call rate cut, because it is expected that there will be little `demand-pull` pressure on consumer inflation, despite both internal and external economic environments have been uncertain due to the depression of facility investments and the sharp decline of exports``. Chon prospected that ``in spite of the call rate cut, the stagflation, in which the consumer price rises during the economic slump, will not take place``.

Gov. Chon told that ``since the internal and external economic environments are uncertain, the monetary policy will be flexibly operated on the basis of the close review on the consumer price index, the indicator of the business condition and the financial market situation,`` And he hinted at the additional rate cut in case that the economy would not recover, saying that `` we can make no guess as to the monetary policy of August.``

One of the MPC members told that ``Gov. Chon strongly demanded the government to curb the rise of the public utility charges in return for the rate cut. And he said that he will make efforts in order to stabilize the won-dollar exchange rate.``

hcs@donga.com