Crisis puts the squeeze on S. Korea

By Cheon Jong-woo  |   2008-10-27  |     NEWSPAPER EDITION

SOUTH Korea, its markets tumbling in the global financial storm, yesterday said it needed to take urgent action to prop up the economy with some analysts saying the central bank would cut interest rates the next day.

The call, after an emergency meeting of top economic officials with President Lee Myung-bak, follows last week's sharp plunge in share prices and the won as fears grow that Asia's fourth-largest economy is buckling under the strain of the global financial turmoil.

"(We) agreed on the need to stabilize market interest rates and to provide sufficient liquidity to avoid corporate bankruptcy," senior presidential economic policy aide Bahk Byoung-won told reporters.

The meeting included the finance minister and the governor of the central bank.

Earlier, the central bank announced it would hold an unscheduled monetary policy meeting today when a number of analysts said it would cut interest rates for the second time this month, possibly by as much as 50 basis points.

Emergency cut

It has only once made an emergency rate cut since adopting its current rate-setting system in 1999 when it reduced rates by half a percentage point shortly after the September 11, 2001 attacks in the United States.

The Bank of Korea joined a global rate cut earlier this month, reducing its main interest rate by 25 basis points to 5 percent and some analysts said today would see another cut.

"Given the panic on Friday in the financial markets, policy makers have no choice but to take measures to calm it," said Ryu Seung-sun, an economist with HMC Investment Securities.

"The Bank of Korea is expected to cut interest rates by 50 basis points at the emergency meeting ... (It) is also likely to announce plans to buy banks' bonds."

But Park Sang-hyun, the chief economist at HI Investment & Securities said a central bank move on bond purchases to ease liquidity problems was more likely than an interest rate cut.