Interest Rate Cut Is Not Likely

Park Seung, president of the Bank of Korea (BOK) has dismissed today the possibility of another interest rate cut, saying that it is not likely because the facility investment and export are in good condition while the consumption and construction investment has been sluggish since last November.”

“If North Korea’s nuclear development programs do not pose a threat, the Korean economy is expected to grow by 5.7% this year. Therefore, there is no reason to cut the rate,” he explained in a talk with the press.

He expressed concerns, however, saying “If the peace in the Korean peninsula is threatened by the North, it could dampen foreign investment, consumption, and export, thereby hitting the economy hard.” This could be interpreted as BOK may lower the rate in case that the economy will be slowed down due to the nuclear development programs.

The BOK previously announced in its last conference of 2002 that it would freeze the call rate because the industrial production jumped and export had been increasing.

“As in the US and Japanese economy during the 1980s-1990s, household loan growth is inevitable in the course of economic development. I am concerned about the rapid pace of household loan growth, but I believe the Korean economy could make a soft landing because about 100 trillion won of household loan will not hurt the banks and the economy can handle the problem,” said Park.

He also said that a restructuring is required due to card firms’ excessive issue of credit cards.

“The price stability despite the low interest rate last year is attributed to companies not investing their cash. There are concerns that a buoyant investment could lead to inflation,” Park added.

Regarding denomination, Park said, “BOK has been reviewing the matter in a long-term perspective. Even if the result of the review comes out, the government will make a decision, paying attention to the public opinion. And it will be possible in 4-5 years.”

Kwu-Jin Lim mhjh22@donga.com