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Strategies & Market Trends : Korea

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From: Paul Kern10/26/2008 3:50:56 PM
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Bank of Korea Calls Emergency Meeting, May Lower Interest Rates

By Seyoon Kim

Oct. 27 (Bloomberg) -- The Bank of Korea monetary policy board called an unscheduled meeting for today, possibly to discuss an interest rate cut after the stock market lost a fifth if its value last week.

``There will be an interim monetary policy board meeting'' today at 8 a.m., the Seoul-based central bank said via a text message sent to the media yesterday, without providing further information.

President Lee Myung Bak yesterday convened a meeting of the nation's top economic policy makers, including Finance Minister Kang Man Soo and central bank Governor Lee Seong Tae, to discuss measures against the financial-market turmoil. The benchmark Kospi stock index plummeted 20 percent last week and the won closed near the lowest level against the dollar in a decade on Oct. 24, extending this year's loss to 35 percent.

``I'm almost certain they'll cut and it's highly likely to be 50 basis points,'' said Lim Jiwon, economist at JPMorgan Chase & Co. in Seoul. ``A rate cut may help boost the stock market a bit, but all in all, the authorities need to restore investor confidence and for this, a concerted effort and more preemptive steps are needed.''

The President urged his aides to come up with appropriate measures ``so that the financial turmoil doesn't link to a recession in the real economy,'' a statement on the Web site of the presidential house said yesterday.

Beijing Summit

Lee returned from a weekend Beijing meeting of Asian and European leaders at which they called for an overhaul of World War II-era banking rules. It was the first meeting of Asian and European Union chiefs since calls for coordinated action mounted amid bank failures and plunging stock prices that began last month.

South Korea's government will probably come up with steps soon to encourage companies to expand investment in factories and create jobs, Yonhap News reported yesterday. The news agency also said the central bank's policy board may discuss cutting interest rates as much as a half-percentage point.

The bank cut rates for the first time in four years on Oct. 9, by 25 basis points, to 5 percent.

Federal Reserve policy makers, meeting this week, are forecast to lower interest rates for a second time this month.

South Korea's economy expanded at the slowest pace in four years last quarter, sparking concern the nation is headed for its first recession since requiring an International Monetary Fund bailout 10 years ago.

Global Crisis

``The global crisis has been brought home to Korea with a rapid deceleration in growth, and there's worse to come,'' Daniel Melser, a senior economist at Moody's Economy.com in Sydney said after the release of the gross domestic product figures on Oct. 24. ``The state of the economy demands a rapid easing in monetary policy from the Bank of Korea.''

South Korea's central bank said Oct. 24 it will inject 2 trillion won ($1.4 billion) into the financial system through repurchase-agreement operations.

The government last week pledged $130 billion to support lenders as the credit crunch saps local banks' access to foreign funds, and said they will spend as much as 8 trillion won to rescue builders struggling with unsold apartments.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net
Last Updated: October 26, 2008 11:00 EDT
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