Benchmark Interest Rate Frozen for 6th Straight Month

The Bank of Korea yesterday froze the benchmark interest rate at a record-low two percent, but hinted at a hike as early as the fourth quarter.

Bank chief Lee Seong-tae yesterday predicted that the Korean economy will grow in the second half. Nevertheless, he sent a strong warning against a rise in housing prices.

He also implied that the central bank will raise the rate in the fourth quarter if Korea’s economy shows better-than-expected performance in the third.

In the monthly meeting of its Monetary Policy Committee, the Bank of Korea froze the rate for the sixth straight month after making its last cut of half a percentage point in February.

Lee said, “Based on interim statistics, Korea’s economy showed better-than-expected performance in the second quarter, growing 2.3 percent from the previous quarter. If new statistical data for June reflecting major economic indexes are released, Korea’s economic growth in the second quarter could be slightly higher."

"The private sector seems to have driven economic recovery from the second quarter. The economy will keep recording positive quarter-to-quarter growth in the second half.”

The central bank apparently believes that the private sector and real economy have begun recovering instead of attributing the growth in the second quarter to government policy.

“We’ll stick to liquidity easing measures for the time being, while thoroughly watching economic developments in the third quarter,” Lee said.

jaeyuna@donga.com