Current Account Surplus in Five Months

Forecasting a better economic outlook for the later half of this year‚ the Monetary Board decided to freeze the call rate at the current 4.0%.

“The economy is not doing well because of sluggish investment and spending. The economy should begin to turn around from the latter half of this year when lower call rates and supplementary budget spending worth 4 trillion won begins to have an effect on the economy,” said Bank of Korea Governor Park Seung, explaining the reason behind the call rate freeze. Park also said concerns over the financial market are disappearing with the condition of bonds issued by credit card companies improving and deposits in investment banks increasing.

The Bank of Korea analyzed however, that a further decrease in domestic demand dampened economic growth despite an increase in exports. Industrial production seemed to slow with domestic demand indicators showing negative signals in May.

The Bank of Korea expected a better economic situation from the latter half of this year when lower goals for call rates and spending of the supplementary budget will bring about a positive impact on the economy. The international environment also is expected to improve with a modest recovery of the U.S. economy. The Bank of Korea also estimated that current account also showed a small surplus in May after recording a deficit for the previous five months from last December. According to an analysis from the bank，the housing market is also showing signs of stabilizing after the government announced a strong policy to rein in skyrocketing prices in the real estate sector. Consumer prices also showed slower growth over the previous month due to a decrease in agricultural products and oil prices.

Celebrating the 53rd anniversary of the Bank of Korea, Governor Park Seung emphasized that the bank should actively implement policies to stabilize the Korean economy as a whole by paying attention to both stabilization of consumer prices and economic growth. He also said that interest rate policies will be implemented flexibly to prevent a serious slowdown in the economy as well as maintain stability as long as it does not undermine stability in consumer prices.

Kwu-Jin Lim mhjh22@donga.com