Bank Of Korea Wanted To Sign Imminent Charge Improve At June Board Meet
A majority of Bank of Korea board
members wanted to flag an imminent rise in interest rates at
their June meeting, before increasing borrowing costs this
month for the first time since the global crisis.
Three out of five members urged Governor Kim Choong Soo to
send a stronger signal that rates may start to rise as early as
July, according to minutes of the June 10 meeting released
today by the central bank.
Its too late to wait until inflation begins to threaten
the economy, one policy maker said at the meeting. A clear
signal should be given that rates may increase by a small
margin in July. The minutes didnt identify the member.
The economy grew 1.5 percent over the three months to June,
beating estimates and boosting the case for a further increase
in rates even as the domestic property market struggles and
export concerns linger. Falling home prices contributed to the
worst annual contraction in the construction industry since
2008 last quarter, creating a policy dilemma for officials.
Policy makers cant stop raising interest rates just
because of the building slump, Lee Sung Kwon, an economist at
Shinhan Investment Corp., said yesterday in Seoul.
Investors have increased their bets on another increase in
interest rates. The yield on one-year treasury bonds has jumped
almost 40 basis points since the June 10 policy meeting to
close at 3.15 percent yesterday, according to data compiled by
the Korea Financial Investment Association.
Price Pressures
The Bank of Korea raised the benchmark rate on July 9 for
the first time since the global crisis to 2.25 percent from a
record-low 2 percent. Counterparts from Taiwan to Thailand,
Malaysia and India have also boosted rates as price pressures
outweigh concerns about the impact on exports of Europes debt
crisis, elevated U.S. unemployment, and a slowdown in China.
The Reserve Bank of India today lifted its key reverse
repurchase rate more than economists forecast to 4.5 percent,
battling to contain a surge in inflation thats led to strikes
and street rallies.
South Koreas gross domestic product rose 7.2 percent in
the second quarter from a year ago, the central bank said
yesterday, slowing from an 8.1 percent jump in the previous
period that was the biggest gain since 2002.
The central bank forecast this month that consumer prices
will rise 2.8 percent this year, more than the previous
estimate of 2.6 percent, and 3.4 percent in 2011. The bank is
targeting inflation of between 2 percent and 4 percent on
average through 2012.
The Bank of Korea has started to drain excess liquidity
supplied during the global crisis. It said in June it would
reduce the ceiling on special loans to commercial banks for
smaller companies by 1.5 trillion won ($1.27 billion) to 8.5
trillion won starting this month.
To contact the reporter on this story:
Eunkyung Seo in Seoul at
eseo3@bloomberg.net