Forex Blog: Currency Trading News & Analysis.

June 10th 2005

BOK ponders interest rate hikes

At 3%, the Korean discount rate is at a record low. The Bank of Korea (BOK) is now facing pressure to raise rates on a number of fronts. First, narrowing interest rate differentials between the US and South Korea have induced a significant outflow of capital to the US, driving down the prices of Korean equities and irking Korean investors. Hiking interest rates will reverse, or at least slow this trend. Additionally, low interest rates and disappointing stock market returns have driven many Koreans to invest in property. Economists are afraid a bubble may have formed in South Korea’s real estate market, and they would like to see it contained. However, the BOK maintains its chief goal is to stimulate the economy, which is on pace to grow at 4% this year, less than the 5% the BOK is targeting. The Korea Herald reports:

The Bank of Korea is widely expected to leave its overnight call rate at a record low of 3.25 percent today to prop up the still-fragile economic rebound, analysts say. Both economic policymakers and economists share the view that domestic demand is not recovering fast enough to negate slowing overseas sales.

Read More: BOK faces dilemma keeping low rate

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Posted by Adam Kritzer | in Central Banks, Exotic Currencies | No Comments »

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