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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: WRAPUP 2-South Korea says economic support has to stay Reuters - Wednesday, September 16 * President says stimulus to stay for a while ADVERTISEMENT * Officials want jobs, investment recovery * C.bank seen having room to move on interest rates * Finance Ministry sees little problem with stronger won By Jonathan Thatcher SEOUL, Sept 15 - Top South Korean officials said on Tuesday that stimulus measures should not be discarded until the economy is in much better shape, although there looks to be grudging acceptance interest rates will have to go up soon. The Bank of Korea signalled last week it would lift interest rates if house prices climbed much more, boosting bets it could move as early as November and become the first G20 central bank to tighten since the global financial crisis. But President Lee Myung-bak, who came to power some 19 months ago with the promise of rapid economic growth, said many past examples showed that moving too fast to phase out stimulus measures only caused further crises. "I believe we should remain careful the exit strategy until the second half of this year or the first half of next year," Yonhap news agency quoted him as saying. Vice Finance Minister Hur Kyung-wook said in an interview with Reuters Television that he needed to be much more confident the economy was pulling ahead under its own steam before ending the most lavish fiscal spending in South Korea's history, brought in to counter the global downturn. "South Korea has a very robust economic recovery. The problem is much of that growth is from the public sector. What I would like to see is a clearer sign that the private sector is recovering, is leading the recovery," Hur said. "I would like to see genuine job creation by the private sector as well as investment. Those two things are the key indicators before ... the Korean government will decide whether this is a good time to put in the exit strategy." BETS ON INTEREST RATE RISE Despite the caution, many in the market are betting that one of the key defence measures used by the authorities -- low interest rates -- will start to tighten later this year or early in 2010 to prevent potential overheating in the domestic economy, especially in the property market. Short-term funding rates firmed to their highest since mid-February, with the 91-day certificate of deposit (CD> rate <KRCD=KQ> rising 1 basis point to 2.62 percent as of 0230 GMT. The central bank's policy rate is a record low of 2.0 percent. In a signal of longer-term rate hike expectations, the spread between the short-term CD rate and one-year interest rate swaps <KRQMCD1Y=KMBC> widened further. "What we're seeing now is the beginning of the divergence between the inflation-mindful central bank and the growth-focused government as the crisis is over," said Park Tae-keun, a fixed-income analyst at Hanwha Securities. "With the economy showing remarkable resilience and the property market bubbling up, the government could no longer keep a tight lid on rates and markets are gearing up for rate hikes of up to 50 basis points by the end of this year," he said. By late August, apartment prices across the country had risen for the 12th consecutive week and at their fastest weekly rate in 16 months. Analysts say the central bank is worried that the rise in house prices -- fuelled by a wave of liquidity pumped into the economy when the global crisis was biting hard -- could distort any economic recovery if it turns into an asset bubble. Vice Minister Hur all but acknowledged the central bank was ready to raise rates though, in deference to the Bank of Korea's independence, was careful not to express any view on the timing. After last week's decision to keep interest rates at 2.0 percent for the seventh straight month, there have been signs the central bank, worried more by housing prices than consumer inflation, is readying to push rates back up. Governor Lee Seong-tae said last week that if there was a rate rise it would not mean an end to the easy monetary policy that has come with successive policy rate cuts from 5.25 percent last October at the height of the global economic slump. [ID:nSEO269632] "I think what the governor mentioned is that at the beginning of the crisis ... was 5.25 percent ... now it's 2 percent. So he has ample range to play with," Hur said. LITTLE HARM STRONG WON Commenting on the recent strength in the won <KRW=>, an early victim when the global crisis erupted a year ago, against the dollar, Hur saw little impact on the economy. "Even though the won is strengthening, if other currencies are strengthening at the same time, perhaps it does not hurt your competitiveness that much," he said. South Korean exports were increasingly diversified and had strong brand recognition and were not driven just by pricing, he added. But currency traders said they spotted intervention by the authorities after the won hit a six-week high against the dollar And local share prices closed at their highest in 14 months. [ID:nSEO212059] The government has long argued that it only tries to prevent too sharp movements in rates rather than change direction. Some traders said they expect the authorities will allow the won to rise more if the dollar continues to droop. (Additional reporting by Cheon Jong-woo, Lee Soo-jung and Seo Eun-kyung, Editing by Dean Yates) Email Story IM Story Printable View Blog This Sign in to recommend this article » 0 users recommend Related Articles: Business Coca-Cola says 2nd ex-employee in China detainedAP - 2 hours 34 minutes ago Best Buy 2Q misses expectations; raises guidanceAP - 2 hours 38 minutes ago Kazakh economy needs more state aid - bankerReuters - 2 hours 52 minutes ago India bond yields at 1-mth low on cbank commentsReuters - 2 hours 54 minutes ago India wants measured capital flows: Cbank headReuters - 2 hours 58 minutes ago Most Popular – Business Viewed Mafia sank boat with radioactive waste: official Depression harms cancer survival rates: study Remains of Jesus-era synagogue found in Israel Obama lashes out at Wall Street Nestle warns of possible exit from Switzerland View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! 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