BOK to keep call rate unchanged at 5.25%

The Monetary Policy Committee of the Bank of Korea (BOK) held a regular meeting Thursday and decided to keep the call rate at 5.25 percent this month. However, considering that companies would need a lot of funds at the end of the year to settle their accounts, the committee decided to supply liquidity flexibly through such means as expanding loans for purchases.

After the meeting, BOK Governor Chun Chol-Hwan, who also serves as chairman of the committee, told reporters that the call rate would be kept at the present level. He cited as the reason for the decision the fact that liquidity shortages at large corporations have shown no signs of easing and financial markets remain unstable due to economic uncertainties inside and outside the country.

Chun rejected calls for an interest rate cut, saying a reduced rate would only have a limited effect on efforts to lower corporations' financing costs and making more funds available to them. Moreover, a cut would build up inflationary pressure and foreign investors might take it as a sign of the weakening of the government's resolve to complete financial and corporate restructuring.

Chun said that 7.9 trillion won worth of corporate bonds would reach maturity in December and that more than half of them, or 4 trillion won worth of bonds, were rated below BBB.

The BOK governor said the bank would control the liquidity to prevent companies' financial difficulties from worsening. He forecast that the current crunch in the financial markets would ease from the first quarter of next year, pointing out that the end of corporate and financial restructuring would remove uncertainties and leave room for a rate cut.