S. Korean 2.75 interest rate unchanged

April 11, 2013 at 1:51 AM
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SEOUL, April 11 (UPI) -- South Korea's central bank, despite government pressure, Thursday left its key interest rate unchanged at 2.75 percent for the sixth straight month.

The decision by the Bank of Korea to keep the seven-day repurchase rate at 2.75 percent, however, was not expected.

Yonhap News reported its poll of 25 analysts had shown only two of them had predicted the rate freeze.

The BOK, however, decided to raise the cap for its soft loans to smaller firms to 12 trillion won ($10.6 billion) from 9 trillion won.

"The economic growth has sustained its weak level as consumption fell month-on-month, though exports were on the recovery trend and investment rebounded," the bank said.

The South Korean economy is Asia's fourth largest after that of China, Japan and India. The economy is also dependent on exports like that of Japan and the weakening yen, which makes Japanese goods cheaper, has been causing concern in South Korea.

The government of newly elected President Park Geun-hye, which has cut its growth forecast for this year to 2.3 percent from the previous 3 percent, has been pressing the BOK to support its stimulus policies to spur growth, Yonhap said.

"The government will unveil what will be one of the largest fiscal supplementary packages. ... We estimate the fiscal impulse similar to three rate cuts, so the fiscal stimulus could crowd out monetary easing in the short term," Waiho Leong, a senior economist at Barclays Capital, told Yonhap.

Other analysts said the bank's rate freeze indicated its assessment of growth has not changed much from the previous month. The bank also may not consider the mounting threats emanating from North Korea as being serious to affect economic growth.

South Korea's economy grew 2 percent in 2012, which was a three year low.

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