Call Rate Likely to Cut down

There is high possibility of the Bank of Korea (BOK) to cut down the call rate again. Such a forecast follows the prospect that as the US`s economic slump has unexpectedly been prolonged. It will surely trigger a chain reaction in Korea`s economy.

It is becoming evident that the U.S. will lower the interest rate at least by 0.5 percent in the Federal Open Market Committee (FOMC) meeting scheduled tomorrow. Thus, the domestic financial market is expecting for the BOK to reduce the interest rate following the international trend of interest cut.

However, there is a significant refuting argument inside the BOK that the interest cut will have little effect on the domestic economy because of the ever-present financial instability.

▽ Aftermath of Terrorism on US Becomes Noticeable

As the economic growth rate of the U.S. dropped to –0.4 percent in the third quarter of this year in the aftermath of the terrorist attacks, there are escalating worries that the international stagnation might be brought into being. In case that the consumer sentiment is extremely dispirited by the prolongation of the bio-terrorism and the U.S.`s retaliatory war, the U.S.`s economic growth rate is forecasted to continue to go downhill in the fourth quarter.

▽ Call Rate Likely To Be Reduced

Many had forecasted some time ago that there would be no interest cut in the Monetary Board on November 8th because the industrial activity trend showed the improvement in the economic index of September. However, the forecast is turning down with the worries that the improvement of object index like the industrial activity trend cannot be seen as the signal of economic recovery, and the U.S.`s economy has fallen down more quickly than expected. Fortunately, the consumer price is so stabilizing that the interest cut is expected to have positive effect on the domestic economy.

However, the insiders of the BOK point out that even though the interest rate has trimmed down, the fund will not be invested to the production activity due to the anxiety on hazy future economy and the delayed corporate restructuring.

nirvana1@donga.com