South Korea's Central Bank Freezes Interest Rate Amid North Korean Nuclear Test Concerns

Strategic Insights -

South Korea's Bank of Korea (BOK) retained its key interest rate at 4.5 per cent in October, despite rising concerns over North Korea's first nuclear test. The decision was widely anticipated by local analysts, with 16 out of 16 surveyed by Yonhap Infomax predicting a rate freeze. The move is aimed at stabilizing the economy, which is already expected to slow down in the second half due to higher oil prices and a stronger South Korean currency.

Key Takeaways:

  • The Bank of Korea (BOK) froze its key interest rate at 4.5 per cent in October, for the second straight month, in response to North Korea's nuclear test and lingering concerns over its implications.
  • The rate freeze was predicted by all 16 local analysts surveyed by Yonhap Infomax, indicating a high level of market consensus on the decision.
  • The BOK expects economic growth to slow to 4 per cent in the second half of the year, from 5 per cent in the first half, due to higher oil prices and a firmer South Korean currency.
  • South Korea's economy is expected to expand 5.1 per cent this year, up from 4 per cent last year, according to government officials.
  • The global economy is expected to slow down in mid-2007, reducing South Korea's export growth to 4.6 per cent, according to government officials.
  • Global investment banks such as BNP Paribas and Deutsche Bank predict that the BOK will adopt a soft monetary policy from early 2007.
  • North Korea's No. 2 leader has hinted at the possibility of additional nuclear tests, depending on the actions of the United States.
  • The US, Japan, and their allies are discussing punitive actions against North Korea, including a possible military response.

Statistics:

  • The Bank of Korea's key interest rate: 4.5 per cent
  • Economic growth in the second half of the year: 4 per cent
  • Economic growth in the first half of the year: 5 per cent
  • Consumer price inflation in September: 0.2 per cent
  • South Korea's economic growth in 2006: 5.1 per cent
  • South Korea's economic growth in 2005: 4 per cent
  • Mid-2007 economic growth forecast for South Korea: 4.6 per cent
  • Global economy growth forecast: expected to slow down in mid-2007

Sources:

  • Yonhap News Agency
  • Yonhap Infomax
  • Bank of Korea (BOK)
  • Government officials
  • Global investment banks such as BNP Paribas and Deutsche Bank
  • John Bolton, US ambassador to the United Nations