South Korea's finance minister warns of deflation risks

South Korea's finance minister warned yesterday of deflation risks and promised to keep prices at an appropriate level, but analysts played down chances of any policy shift in the short term.

Bond futures prices pared gains and the won was almost unchanged after finance minister Choi Kyung-hwan made the remarks at a scheduled meeting with leaders of the country's largest industry association.

"Regarding the consumer price trends, there are fears of deflation. The government will make efforts to manage prices at certain [appropriate] levels," Choi said at the meeting with leaders of the Korea Chamber of Commerce and Industry.

Analysts said the remarks could be interpreted as either an attempt to put pressure on the central bank to consider further lowering interest rates or warning against currency traders betting on a stronger won, but doubted Choi would make any policy change.

"I doubt he meant to flag any new policy but I think he was trying to push companies hard to raise wages higher," said Park Chong-hoon, an economist at Standard Chartered Bank Korea.

December futures on three-year treasury bonds were quoted up 0.04 points on the day in afternoon trade after giving back earlier gains of up to 0.13 points. The won was up 0.5 per cent on the day at 1,079.1 per US dollar.