S.Korea officials say still have policy options
Reuters - 1 hour 30 minutes ago
By Cheon Jong-woo
SEOUL, Nov 23 - South Korea's top financial officials said on Sunday they had additional policy options to combat the global downturn, a comment analysts saw as further pressure on the central bank to cut interest rates.
Asia's fourth-largest economy has been especially hard hit by the global downturn which has hammered its financial markets and slashed economic growth forecasts, with one leading investment bank saying it could shrink by 3 percent next year.
The officials also promised to try to ease market interest rates, with local companies struggling to raise debt amid the global credit squeeze.
"The government is asking the Bank of Korea to lower interest rates at a faster clip and by a larger margin," said Kim Jae-eun, an economist at Hana Daetoo Securities. "It is calling for a preemptive action before the economy collapses further."
In the past two months, the government has announced a series of measures to cut rates and stimulate sagging economic growth but these have done little to calm fears over the economy's future.
The Seoul stock market index <.KS11> has nearly halved and the won <KRW=> slumped almost 40 percent against the dollar this year.
"An unprecedented scale of financial crisis is spreading to the global economy," Prime Minister Han Seung-soo said at the beginning of the meeting, also attended by the finance minister, the Bank of Korea chief and the financial regulator head.
"We need financial support for small companies and exporters."
Since South Korea has a lower national debt level and higher policy rates than other economies, Han called for authorities "to make use of the room", a statement following the meeting said.
Cho Won-dong, a senior official in the prime minister's office, also said the country has more room to manoeuvre with its monetary and fiscal policy, but declined to comment when asked whether the government was supporting further rate cuts.
The statement also said South Korea is expected to post a trade surplus of about $4 billion in the fourth quarter as prices of oil and other raw materials have eased.
Analysts say concerns about the won's rapid fall have made the Bank of Korea reluctant to lower rates aggressively. Improving balance of payments will likely help the won.
To help cash-poor local companies, the government is discussing a 10 trillion won fund to invest in corporate bonds to ease liquidity problems for companies.
The Bank of Korea is holding a special meeting on Monday to discuss its possible role in the planned fund.
Analysts said they do not expect the central bank to use that meeting to deliver a new rate cut. It has cut rates by 1.25 percentage points to 4.0 percent since October. Its holds its next monthly rate review on Dec. 11.
Separately, the government will hold a meeting with international financial firms in Singapore on Monday to promote won-denominated treasury bonds and assure investors of the economy's fundamentals.
Swiss bank UBS last week forecast that a heavy debt burden will make the South Korean economy contract by 3 percent next year, for South Korea's first recession since the Asian financial crisis a decade ago.
The prediction is considerably more gloomy than a market concensus of around 2 percent growth in 2009. (Writing by Rhee So-eui; Editing by Jonathan Thatcher & Kim Coghill)
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