Strikes may delay economic recovery: BOK chief

Source: Korea Times

Mishandling labor issues or risk management could delay the long-awaited economic recovery, the nation's top central banker warned yesterday.

Emerging from a meeting of the monetary policy committee yesterday, Bank of Korea (BOK) governor Park Seung said the central bank will keep a close eye on economic developments as there are both positive and negative signs present.

''Although the outlook for an economic recovery is very encouraging, there remains the possibility that the economy will stay on a downward track if labor problems and risk management are mishandled,'' Park said.

He pointed out that despite continually shrinking private spending, there have been improvements in sectors such as exports, industrial and construction activities, the current account and stock market indices.

He added that the recent rise in yields from long-term bonds reflects the market's expectation for a economic recovery and bull stock markets.

''Our previous forecast that the economy bottomed out in the second quarter and will rebound in the second half is still effective,'' he said.

''But we will have to closely watch developments to decide whether the recent economic improvement is temporary,'' he added, indicating that the central bank will be neutral with its monetary policy in the coming months.

In this sense, during the monetary policy committee meeting the central bank's policy-setting body decided yesterday to maintain the overnight call rate at 3.75 percent.

The call rate refers to the benchmark short-term interest rate that banks charge one another on overnight loans.

The central bank has implemented two rate cuts this year. It trimmed the rate to 4 percent from 4.25 percent in May, the first rate change since May last year, followed by another cut of 25 basis points in June.

In the meantime, Park flatly denied the possibility of deflation _ lower goods and services prices coupled with a shrinking economy.

The central bank said that in July, inflation continued to ease for the fourth consecutive month due to the reduction in the special excise tax on home appliances and automobiles, while the upward pace of housing prices has also stabilized.

It added that the current account moved back into a balance from last month's large surplus primarily because of the substantial reduction in the commodity account surplus.