* BOK keeps rates at 1.25 pct (Reuters poll 1.25 pct)
* 2017 GDP growth cut to 2.5 pct vs 2.8 pct
* Consumption biggest reason for GDP downgrade -BOK chief
* Central bank observing events amid uncertainty
* Political scandal, Trump qualms keep BOK on hold
(Updates with governor's news conference)
By Christine Kim and Cynthia Kim
SEOUL, Jan 13 South Korea's central bank kept
interest rates unchanged at a record low 1.25 percent on Friday,
for a seventh month, and slashed its growth forecast for 2017 as
it braces for U.S. policy developments under the presidency of
The central bank is also watching an influence-peddling
scandal that could topple President Park Geun-hye, who has
already been impeached by parliament and now awaits a
"Going forward, we should scrutinise the new U.S.
administration and growing household debt," Governor Lee Ju-yeol
told a news conference, noting Friday's vote had been unanimous.
The central bank last adjusted rates in June last year,
cutting by 25 basis points.
Lee said 2017 GDP growth was now seen at 2.5 percent and
the consumer price index was seen rising 1.8 percent versus
previous forecast growth of 2.8 percent and 1.9 percent,
"Much has changed since our last revision in October,
leading to our forecasts today," said Lee. "But the biggest
reason for the downgrade was consumption."
The finance ministry cut its economic growth forecast this
year to 2.6 percent from 3.0 percent seen in December.
Lee said recent improvements in consumption were partly
government-led, and noted his disagreement with the view
consumer spending was recovering swiftly.
Consumer sentiment fell in December to its worst level in
more than 7-1/2 years, sapped by Korea's political crisis and
turbulent financial markets.
"Judging from today's remarks, the BOK will stay
accommodative for a while although I doubt it will increase the
chances for a rate cut," said Oh Suk-tae, economist at Societe
"It seemed like Lee was giving forward guidance; the BOK
won't be raising rates just because the United States is doing
Even if some analysts feel a cut is needed, the BOK finds
itself in a tight spot for monetary policy: Although economic
growth is sluggish, household debt continues to mount even as
the U.S. Federal Reserve readies further rate hikes.
Benchmark 10-year Treasury bonds bounced from
record-low yields last December as the Fed hiked rates, and have
been trading at levels last seen in late 2015, raising questions
over gaps between South Korea's policy rate and market interest
This is largely the reason a majority of analysts see the
BOK standing pat for the rest of the year, according to a
Reuters survey, despite some saying the economy would benefit
from another rate cut.
South Korea's economy, Asia's fourth-largest, could face
headwinds from the incoming Trump administration if the
protectionist policies Trump promoted in his election campaign
were to be implemented - severely undermining the exports that
have just started to turn around.
As for the ongoing political turmoil at home, central bank
officials have said monetary policy will not be directly
influenced by a new president, should one take office, but the
bank is preparing itself for changed macro-economic policies
that could come with a new administration.
(Reporting by Christine Kim and Cynthia Kim; Additional
reporting by Dahee Kim; Editing by Eric Meijer)