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BOK governor cautions over policy rate normalization

(Xinhua)

14:10, March 08, 2012

SEOUL, March 8 (Xinhua) -- The Bank of Korea (BOK) Governor Kim Choong-soo took cautious stance on Thursday over the resumption of rate normalization process, indicating that the bank would sustain its rate freeze stance for the time being.

"In the past, we presented chronic inflation expectations, the global economic recovery and the sustainable growth of local economy as three requirements for rate normalization, but it is hard to say that the global economy recovered now as the real economy has yet to recover," Kim told reporters after the March rate-setting meeting.

The BOK left its 7-day repo rate steady at 3.25 percent for nine straight months at the March rate-setting meeting due to lingering concerns over downside risks to the economy and the possible acceleration in inflationary pressures amid high oil prices.

Asked about higher oil prices, the governor noted that if Dubai crude oil, South Korea's benchmark, surges to 150 U.S. dollars a barrel from the current 120 dollars level, the consumer price inflation would go up by 0.5 percentage points than the BOK's estimated 3.3 percent for this year. Under the same assumption, the country's economic growth rate would go down by 0.5 percentage point, said Kim.

The governor noted that the central bank should take considerably all the effects of high oil prices on both economic growth and inflation, stressing that high oil prices tend to have a significant impact on the headline inflation.

Touching on macro-prudential measures, Kim said that around 8 billion U.S. dollars flowed out of the country after the sovereign rating downgrade of the United States last year, but he stressed that more foreign capital, which offset last year's outflow, flowed into the country for the first two months of this year, indicating that macro-prudential measures helped stabilize the nation's financial market.

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