Stock Market Declines, Bond Yields Jump




Bank of Korea governor Park Seung, right, presides over the Monetary Policy Committee meeting to decide on the overnight call rate at the central bank in Seoul, Thursday. The interest rate was unchanged at 3.5 percent.
/ Korea Times


By Cho Hyung-kwon
Staff Reporter
The Bank of Korea (BOK) left the benchmark interest rate unchanged at 3.5 percent Thursday, citing concerns that rising oil prices could lead to higher inflation.

Despite much anticipation of an interest rate cut to boost the slumping economy, the central bank’s Monetary Policy Committee on Thursday decided to freeze its target for the overnight call rate for the second straight month. The call rate is the interest rate banks charge each other for overnight loans.

BOK Governor Park Seung said it was important to keep inflation under control even though Korea’s economy was on a downward trend. He expected the economic slowdown to continue for the time being.

``Private consumption remains sluggish and the pace of export growth has declined to some extent. The core inflation rate has been rising and consumer prices continue to show unstable movements,’’ Park said.

He pointed out that the high oil prices are risks for stagflation and climbing prices would have a more serious impact on inflation than economic growth.

``There is a limit on how much monetary policy, especially interest rates, can do to bolster the economy and control inflation. This is the same in other countries,’’ Park said.

Park expected consumer prices to rise by 4 percent this year and core inflation to reach 3.5 percent, the high end of the bank’s inflation target range.

The Seoul stock market declined for the first session in seven as investors were disappointed with the central bank’s decision to keep rates on hold.

The Korea Composite Stock Price Index fell below 880 points right after the news but managed to pare down losses toward the market’s close to finish at 885.33, down 0.23 percent, or 2.12 points, from the previous day.

Bond yields jumped after Park criticized the bond market for what he believed was signs of overheating, as bond investors were recently riding on expectations of a rate cut.

The three-year Treasury bond yield jumped 17 basis points to 3.63 percent, while the yield on the five-year Treasury bond also climbed 19 basis points to 3.77 percent.

The Korean won strengthened against the U.S. dollar, gaining slightly to trade at 1,150.20 won to the greenback.

International oil prices closed at a record high as West Texas Intermediate crude oil for November delivery closed at $52.02 a barrel on the New York Mercantile Exchange, the highest since oil futures began trading in 1983.

Prices continued to rise in after-hours trading to as high as $52.24 a barrel.

kevincho@koreatimes.co.kr