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South Korean central bank hints at policy rate cut

"The recession trend will last for the time being," Ha Sung-keun, Bank of Korea (BOK)'s monetary policy board member, told reporters Monday.

Seoul: A policy board member of the South Korean central bank Monday hinted at policy rate cut in the near term, confirming the governor's recent suggestion that monetary policy will go in line with fiscal policy.

"The recession trend will last for the time being," Ha Sung-keun, Bank of Korea (BOK)'s monetary policy board member, told reporters Monday.

"There is no change in fundamentals as quantitative easing is like a solution to prevent bubble with another bubble."

Going through the Lehman collapse to the eurozone fiscal crisis, central banks in the US and Europe poured massive liquidities into the global financial system. The liquidity-pouring movement was joined by Bank of Japan (BOJ), which promised to make Federal Reserve-type asset purchases a year later, reported Xinhua.

Ha Sung-keun's comments suggested that the liquidity-pouring measures failed to improve the global economic fundamentals to a large extent, fueling expectations that the central bank would cut its policy rate further amid the still gloomy outlook.

BOK Governor Kim Choong-soo said Jan 14 that monetary policy can be effective when it comes with fiscal policy, indicating that the central bank may lower the borrowing costs further in accordance with the expected fiscal stimulus.

The new administration under President-elect Park Geun-hye was widely forecast to unveil new stimulus measures such as the supplementary budget in the first half to boost economic growth in the early period of the new presidency. The new government will take office in late February.

Touching on the weaker yen, Ha noted that "it is not too much to say that currency war has started" with the BOJ's plan to pour massive yen into the system, worrying that protectionism was increasingly stronger.

The South Korean currency surged 19.6 percent to the yen in 2012, triggering concerns over the weakening of price competitiveness for local exporters that are fiercely competing with Japanese rivals in the global market. The currency rallied 7.6 percent versus the US dollar.

Hyundai Motor's fourth-quarter profit fell despite its record global car sales due to the stronger won worsening its profitability. The country's No. 1 carmaker depends on overseas markets for more than 80 percent of sales.

South Korean Finance Minister Bahk Jae-wan cautioned that expansionary monetary policy in Japan will lift costs through various channels such as higher government bond yields in the long run. The nation's Vice Finance Minister Shin Je-yoon warned over the currency war possibly accelerating.

The BOK kept its benchmark interest rate on hold at 2.75 percent at the January rate-setting meeting after cutting the rate by 25 basis points in July and October 2012 respectively.