The South Korean Central Bank Vows To Closely Monitor The Impact Of Their Policies On The Financial System

The South Korean central bank seems to be concerned regarding the impact of the unusual fiscal policies adopted to stabilize the entire economy on the financial system. In this sense, it vows to closely monitor the developments seen in asset prices, crediting and cash flows within the financial markets.

This announcement was made throughout the semi-annual report that the South Korean central bank releases concerning their monetary policy and credit policy. The bank said it will monitor any movements in asset prices and cash flows within the financial markets, in order to ensure that unusual fiscal policies adopted so far will not negatively affect the stability of the financial system.

The central bank in South Korea has lowered interest rates to 2.00% in order to protect its economy as well as investments and crediting operations from the negative impact of the worst global financial crisis since World War II. And even though the fundamentals started improving recently in South Korea, the central bank kept interest rates at low levels since conditions have not stabilize yet.

In addition, the South Korean government adopted a stimulus plan worth 76 trillion won (52 billion dollars) which were mainly directed towards households, as it was intended to give support to the domestic consumption in order to compensate for the sharp fall in exports due to weak global demand. And this is why the economy managed to avoid falling into recession during the first quarter when it grew by 0.1%.

During the second quarter, the economy benefited mainly from the recovery started to be experienced by the Chinese economy, which increased its demand on the South Korean goods, therefore companies started refilling their stocks and productions started improving. And since the government continued to increase spending on infrastructure projects in order to create new jobs and encourage investment, the economy managed to grow by 2.6%.

The central bank now faces increasing pressures that demand higher rates in order to keep inflation, asset price and cash flow under control. Yet others demand a continuation of their current policies in order to ensure a real economic recovery, especially since the central bank still expects the economy to shrink this year.

This is attributed to the uncertainties concerning the recovery by the global economy. Many point to the fact that worldwide demand could face a relapse after companies will finish refilling their stocks. Such fears started appearing from the current account numbers, as it saw its surplus shrink to during the month of August to 2.0438 billion dollars, compared with the previous surplus of 4.3587 billion dollars after demand on exports fell again especially cars

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