Incoming South Korean
minister cites weak economy; Samsung, retail lag
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[July 08, 2014]
By Christine Kim
SEOUL (Reuters) - South
Korea's nominee finance minister nominee vowed on
Tuesday to focus on boosting consumer spending and
corporate investment to bolster a sagging economy, but
stopped short of calling on the central bank to consider
cutting interest rates.
While all but two of 26 analysts surveyed by Reuters late on Tuesday
forecast the Bank of Korea will keep the policy interest rate
unchanged at its July 10 meeting, recent softening in Asia's fourth
largest economy has led to growing speculation that the central bank
could cut rates.
Most analysts polled on Tuesday, however, said the next rate change
would be an increase.
At a parliamentary hearing on Tuesday, Choi Kyung-hwan, 59, a former
economy minister and lawmaker, disappointed bond investors who had
hoped he would pressure the Bank of Korea to cut interest rates to
boost domestic demand.
Bond prices fell across the board on Tuesday as Choi declined to
comment when asked if he wanted the central bank to lower interest
"The South Korean economy is weak, and we had the ferry sinking,
while the global economy is facing stronger downside risks than we
thought," Choi said.
South Korea's economy grew 0.9 percent during each of the previous
two quarters on a sequential basis but recent indicators show the
economy lost much of its luster in the April-June quarter after the
mid-April Sewol ferry disaster.
Choi did not elaborate on how to buoy domestic demand, saying
restrictions on property-backed borrowing would be eased, modestly,
given concerns that easier borrowing rules could add to already
heavy household debt.
Some of Choi's earlier remarks describing an urgent need to
stimulate domestic demand had fanned speculation among bond
investors that the government would put pressure on the central bank
to lower interest rates.
"Choi Kyung-hwan showed a neutral position on the interest rate
policy stance and I think he won't pressure the central bank to cut
interest rates," said Kim Min-gyu, a fixed-income strategist at
Sales at the country's top three department store chains and top
three discount chains were estimated to have fallen in June from a
year earlier, swinging from growth in May, data showed on Tuesday.
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Adding to the gloomy economic mood, smartphone giant Samsung
Electronics Co Ltd warned on Tuesday of weak earnings for the
second quarter, which put it on track for its worst results in two
The manufacturer cited the strong won <KRW=> as a factor behind its
estimated 24.5 percent annual fall in operating profit in the
April-June period as the rising currency shrunk the exchange value
of dollar revenues.
The won's average dollar value in the second quarter shot up by 9.1
percent over a year earlier, the fastest pace since the third
quarter of 2011, central bank data indicates.
The benchmark 10-year treasury bond yield rose 3.2 basis
points to 3.159 percent and the 1-year yield added 1.4 basis points
to 2.563 percent.
Choi is due to start work as one of two deputy prime ministers and
Minister of Strategy and Finance later this week.
(Additional reporting by Se Young Lee and Yena Park; Writing by
Choonsik Yoo; Editing by Tony Munroe and Eric Meijer)
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