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South Korea central bank holds rates at record low to boost domestic consumption
July 13, 2017 / 1:12 AM / 2 months ago

South Korea central bank holds rates at record low to boost domestic consumption

The logo of the Bank of Korea is seen on the top of its building in Seoul, South Korea, March 8, 2016. REUTERS/Kim Hong-Ji/File Photo/File Photo

SEOUL (Reuters) - South Korea’s central bank held its policy rate at a record-low 1.25 percent for a 13th straight month on Thursday, a widely expected decision as policy makers seek to boost subdued private consumption and keep any thoughts of tightening off the table for now.

The Bank of Korea’s monetary policy committee held its base rate KROCRT=ECI steady, a media official said without elaborating. Governor Lee Ju-yeol is due to hold a news conference from 11:20 a.m. (0220 GMT)

All 20 economists surveyed in a Reuters poll had forecast the central bank would stand pat, noting that weak private consumption and tepid job growth are taking some of the shine off steady gains in exports.

A majority of analysts see the central bank on hold for the rest of this year, and expect any move to normalize rates to happen next year.

The BOK will release quarterly revisions to its economic forecasts later in the day.

“It would be difficult to raise rates in the second half but raising it in the first half of 2018 would be unavoidable,” said Oh Chang-sob, fixed-income strategist, Korea Investment and Securities, noting that higher U.S. interest rates raises the risk capital outflows from South Korea.

Markets shrugged off the policy decision, with the won KRW= and stocks .KS11 up slightly and futures on three-year treasury bonds KTBc1 rising 0.02 points to trade at 109.17.

After five years of accommodative policy, most analysts expect the BOK to take a hawkish turn next year in a more gradual approach to exiting low rates than some of its counterparts in Europe and Canada.

Indeed, while exports grew at a double-digit rate for the sixth month in a row in June, lukewarm jobs growth and subdued private consumption argue against a rush to tighten rates.

South Korea’s consumer price inflation has cooled from the peak of 2.2 percent in March to 1.9 percent in June, slightly below the BOK’s target of 2 percent.

It’s too early for the BOK to join global counterparts in talking up policy tightening, said Kim Yu-mi, an economist at Kiwoom Securities.

“The BOK needs to confirm soaring exports leads to stronger domestic demand before it can rise interest rates,” Kim said before the rate decision.

The Federal Reserve has already raised rates twice this year and is expected to tighten again before year-end, while the European Central Bank is preparing markets for tapering its massive stimulus possibly as early as 2018.

Reporting by Cynthia Kim and Christine Kim; Editing by Shri Navaratnam

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