[News Today] BOK FREEZES RATE DESPITE STAGNATION

[LEAD]
Yesterday, the Bank of Korea made a critical decision to hold the key interest rate steady at 3.0%. Expectations were leaning towards a cut due to the deep economic slump, but the central bank opted for stability.

[REPORT]
Coffee prices rose by more than 8% and chocolate prices over 10% last month.

The price of processed food is going up.

Kim Hyun-min / Seoul resident
Prices have gone up. I’m reluctant to buy.

The average price of gasoline has again topped 1,700 won per liter.

Ha Woo-gwon / Passenger car driver
At the pump, I realize modest price gains, likely due to exchange rate situation.

Coffee, chocolate and petroleum. What do they have in common? They are all imported goods.

Even if global crude oil prices stay the same, if the exchange rate goes up, domestic prices will rise.

This is the main reason why the Bank of Korea held the key interest rate steady.

If interest rates at home further decline, that will widen the gap with U.S. rates... in which case the won-dollar exchange rate will further climb and stimulate inflation.

Rhee Chang-yong / Governor, Bank Of Korea
All committee members supported a rate cut in view of the economic situation. But there’s also inflationary concerns amid the exchange rate reaching 1,470 won.

The Bank of Korea had signaled a rate cut several times.

In its report on fiscal credit policy, the bank in a rather unusual move, indicated a cut.

In his new year speech, the BOK governor also mentioned swift moves.

Rhee Chang-yong / Governor, Bank Of Korea (Jan. 2)
Monetary policy should be implemented in a flexible, agile manner in line with market changes.

The rate should go down in view of sluggish domestic demand but a lower rate could raise concerns over the foreign exchange rate and inflation.

This is why the central bank has frozen the rate this time in a wait and see mode.

It appears to be in a dilemma, stuck between a rock and hard place.