SEOUL, Oct 19 — South Korea’s central bank held its key interest rate at a record low today amid expectations that policy makers will begin mulling the timing of a rate increase before too long.
The decision to keep the seven-day repurchase rate at a record-low 1.25 per cent, unchanged since June 2016, was expected by all 17 economists surveyed by Bloomberg. Despite a reasonably healthy economy and inflation near the Bank of Korea’s target, uncertainty caused by military tensions with North Korea has weighed in favour of a cautious approach.
Governor Lee Ju-yeol will hold a media briefing later this morning, at which he’s likely to reveal whether there was any dissent after more than a year of unanimous decisions by the board. Today’s meeting was one of four rate-setting gatherings left for Lee, whose term ends March.
The BOK chief has signalled since June that the next policy change will be a rate increase, if there are no doubts about the economic recovery. He has also flagged that a prolonged period of low borrowing costs can lead to financial imbalances.
“Just looking at the economy’s performance, it seems the BOK can raise rates at any time, but it has other factors to consider like North Korea risks,” Stephen Lee, an economist at Meritz Securities Co in Seoul, said before the decision.
“Lee can give more hawkish comments to tell investors to be prepared, but I still see actual change only coming in the first half of 2018.”
The central bank also releases an updated economic outlook later today. It previously forecast 2.8 percent expansion for gross domestic product and 1.9 per cent inflation this year.
Lee at Meritz said the BOK’s projection for this year’s GDP may be raised slightly to 2.9 percent, and that the inflation estimate may increase to 2 per cent.
Exports have expanded by double-digits this year, and consumer price gains have been above the BOK’s 2 per cent target for the past three months.
In a Bloomberg survey of analysts on longer-term projections, six out of 22 analysts saw a rate increase by the end of the first quarter, and a majority expected the change by the second quarter or later.
The yield on three-year government bonds rose 19 basis points in the past month to 1.94 per cent as of the market close yesterday. The won weakened 0.3 per cent during the same period to 1,130 per US dollar. — Bloomberg
