By Saeromi Shin and Cesilia Han March 10 (Bloomberg) — Bank of Korea Governor Lee Seong Tae will probably keep interest rates unchanged at his final meeting as he faces “intense” political pressure to spur investment and cut unemployment. Lee will hold the seven-day repurchase rate at a record-low 2 percent when his board meets at 9 a.m. tomorrow in Seoul, 13 of 14 economists surveyed by Bloomberg News say. One expects a quarter-point increase. Finance Minister Yoon Jeung Hyun said this week now “is not the right time” to boost borrowing costs. The government wants Lee, whose term expires March 31, to hold down rates as the economy shows mixed signs: growth slowed in the fourth quarter and unemployment soared in January, while exports have risen for four months and manufacturers’ confidence is at a seven-year high. To reinforce its stance, the government has sent a vice finance minister to the past two policy meetings. “Political pressures remain intense,” said Kevin Grice , an economist at Capital Economics Ltd. in London. “While there is an outside chance that rates will move up, it is most likely” they will remain on hold, he said. Governor Lee’s successor and replacements for two other Monetary Policy Committee members “will probably be sympathetic to the government view” and the first rate increase is unlikely before the third quarter, Grice said. President Lee Myung Bak is considering five candidates to head the Bank of Korea, DongA Ilbo newspaper reported last month, citing unidentified central bank and government officials. Possible Successors These include Euh Yoon Dae , head of a presidential council set up to promote South Korea internationally; ex-Finance Minister Kang Man Soo ; Kim Jong Chang , head of the Financial Supervisory Service; Park Cheul , a former deputy governor of the central bank; and Kim Choong Soo, envoy to the Organization for Economic Cooperation and Development, according to the newspaper. The failure to announce Governor Lee’s replacement three weeks before his term expires hasn’t spooked the markets. The benchmark Kospi stock index has risen more than 5 percent in the past month and the won gained 2.6 percent over the same period. Finance Minister Yoon told reporters on March 8 that “it is the government’s firm belief that it is not the right time for rate hikes” as business investment is weak and prices are at manageable levels. Lee Sung Kwon , an economist at Shinhan Investment Corp. in Seoul, said policy makers may also hold off on a rate increase tomorrow as “concerns over tightening measures in China remain.” China Tightening China, South Korea’s biggest export market, in February ordered banks to set aside more deposits as reserves for the second time in a month to avert asset bubbles. In the fourth quarter, Chinese gross domestic product increased 10.7 percent from a year earlier, the fastest pace since 2007. In contrast, South Korea’s economy expanded 0.2 percent in the fourth quarter and unemployment surged to a 10-year high of 4.8 percent in January. President Lee has put unemployment at the top of the political agenda, vowing to cut the average jobless rate to about 3 percent this year. The government boosted this year’s budget by 3 percent to 292.8 trillion won ($258 billion) and will accelerate distribution of funds as it seeks to maintain the recovery. The central bank said the slowdown in growth in the fourth quarter was a temporary adjustment. In November, it widened the annual inflation target range to between 2 percent and 4 percent. Consumer prices increased 2.7 percent in February. Exports Surge Asia’s fourth-largest economy is showing signs of strengthening. Exports climbed 31 percent in February from a year earlier, the fourth monthly increase. Samsung Electronics Co. , the world’s second-largest mobile-phone maker, said its handset shipments may expand about a fifth this year, helped by demand for smartphones. Manufacturers’ confidence for March rose to the highest level since the fourth quarter of 2002, when the Bank of Korea published its confidence survey on a quarterly basis. The central bank’s failure to raise rates last year confounded analysts, who forecast it to be one of the first in Asia to move after the economy expanded 3.2 percent in the third quarter, the fastest pace in seven years. Since then, Australia, China, India and Vietnam have tightened monetary policy as Asia leads the recovery from the global recession. Tim Condon , head of Asia research at ING Groep NV in Singapore, says Governor Lee may use his last meeting to boost borrowing costs. “South Korea’s economy has staged a vigorous, self- sustaining recovery and the Bank of Korea can begin to normalize its policy rate,” said Condon, who forecasts a quarter-point increase tomorrow and expects the rate to rise to 3.25 percent by year’s end. “Rising property prices could become an issue if record-low financing conditions persist for too long.” To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net ; Cesilia Han in Seoul at chan4@bloomberg.net
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Bank of Korea’s Lee, Under Pressure at Final Meeting, May Keep Rate at 2%
