Sept. 8 (Bloomberg) -- South Korea and Indonesia held off from raising borrowing costs today amid mounting risks that the global recovery will stall even as inflation may accelerate. The Bank of Korea held the benchmark seven-day repurchase rate at 3.25 percent, while Indonesia’s central bank left its benchmark interest rate unchanged at 6.75 percent, they said in statements from Seoul and Jakarta. The central banks of Malaysia and the Philippines will probably also keep their benchmark rates unchanged when they meet later today, according to two Bloomberg News surveys of economists. Europe’s debt crisis and a faltering U.S. recovery are clouding the outlook for exports in countries from Indonesia to South Korea. Australia today reported employers unexpectedly cut jobs, underscoring the pressure on central bank Governor Glenn Stevens to pause on raising interest rates, while data in Japan showed machinery orders fell the most in 10 months. “The backdrop of European debt concerns and weaker external growth has likely brought forward the end of the Asian rate tightening cycle,” said Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore. The won fell 0.3 percent to close today at 1,075.13 per dollar in Seoul, according to data compiled by Bloomberg. The benchmark Kospi stock index gained 0.7 percent. The index plunged 12 percent in August, the biggest monthly drop since the global financial crisis in 2008. Indonesia’s rupiah was little changed at 8,569 a dollar as of 1:51 p.m. in Jakarta today. World Bank President Robert Zoellick said this week the world is “moving into a dangerous period” as stocks extended a slump that wiped $6.6 trillion off global equity values in the three months ended Sept. 5. Inflation may limit the scope for stimulus in Asia as expansions slow from China to Malaysia. Sentiment Worsening Recent economic reports suggest that while overseas demand for South Korean goods is holding up, corporate executives’ sentiment is worsening as the global economic outlook dims. Exports continue to drive the economy, expanding a more- than-expected 27.1 percent in August, while industrial production rose 3.8 percent from a year earlier in July, less than analysts’ median estimate of 6.2 percent. Manufacturers’ confidence for September fell to a 21-month low, a Bank of Korea report last month showed. Governor Kim said the central bank may not be able to resume raising interest rates until “external” factors such as Europe’s debt crisis look to be under control. “The external situation is such that we see downside risks to our economy as being larger than before,” he told reporters after the policy decision. “We can’t move interest rates as long as external conditions are unstable.” BOK Not Unanimous Kim also said today’s decision wasn’t unanimous, without elaborating. An interest-rate cut wasn’t discussed, he said. Growth in vehicle sales at Hyundai Motor Co, South Korea’s largest carmaker, slowed to 5.1 percent in August from a year earlier after a 9.2 percent gain in July and a 13 percent increase in June. Samsung Electronics Co., the world’s largest maker of televisions and flat-screen panels, reported an 18 percent drop in second-quarter profit on slumping TV and display sales. “The BOK will keep the policy rate on hold until the end of 2011 because of lingering downside risks to growth,” Oh Suk Tae, an economist at SC First Bank Korea Ltd. in Seoul, said before today’s monetary policy announcement. “But, it’s expected to resume its cycle of rate hikes in 2012, barring a double-dip recession in developed economies.” Korean Inflation Inflation has accelerated even after policy makers boosted borrowing costs three times this year and the government imposed price controls. Consumer prices in South Korea rose 5.3 percent last month from a year earlier, the biggest gain in three years. Governor Kim said inflation may be higher than expected and the central bank’s 4 percent target ceiling “may not be achievable” this year. President Lee Myung Bak held an emergency cabinet meeting on July 20 to discuss ways to contain inflation as the rising cost of living hurts his popularity. Lee’s approval rating stood at 34.4% last week, compared with 76% in his first week in office in Feb. 2008, according to Realmeter, a polling company in Seoul. To contact the reporters on this story: Eunkyung Seo in Seoul at [email protected] ; William Sim in Seoul at [email protected] ; Novrida Manurung in Jakarta at [email protected] To contact the editor responsible for this story: Paul Panckhurst at [email protected]
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