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Bank of Korea holds rates for 4th month in October, as expected
October 13, 2016 / 1:52 AM / a year ago

Bank of Korea holds rates for 4th month in October, as expected

SEOUL (Reuters) - South Korea’s central bank kept interest rates unchanged at 1.25 percent for a fourth consecutive month on Thursday, wary of snowballing household debt after it was berated by lawmakers last week for enabling borrowing.

A man gets on a bicycle in front of the Bank of Korea in Seoul August 9, 2012. REUTERS/Kim Hong-Ji/Files

A Bank of Korea media official did not elaborate on the monetary policy committee’s decision.

All but one of 24 economists surveyed by Reuters had expected the Bank of Korea to leave the policy rate at a record low 1.25 percent as board members weigh the risks of household debt growing at a rapid pace. [nL4N1CH1E5]

The central bank is set to revise economic forecasts from late July when it projected this year’s growth at 2.7 percent and next year’s at 2.9 percent. [nL4N19Z4YT]

“The case for more cuts depends on the BOK’s view of domestic demand,” Peter Park, a fixed-income analyst at NH Investment & Securities said after the rate decision. He sees a cut in the first quarter of next year.

“Markets are expecting a downward revision for next year’s growth outlook, due to Samsung Electronic’s decision to terminate the Galaxy Note 7 and the anti-graft law,” he said, referring to Samsung’s fire-prone device and a new measure to curb lavish gifts and hospitality offered to potentially influential people.

Markets were unfazed by the interest rate announcement, with the won and stocks both up slightly in early trade and futures on three-year treasury bonds KTBc1 up 0.05 points to trade at 110.67.

Analysts have said any revisions to the BOK’s forecasts would be minimal, as they were in July.

Annual inflation in September accelerated to 1.2 percent, its highest in seven months, on a recovery in consumption which was expected to deter the BOK from moving rates anytime soon. [nL3N1CA3TQ]

Rising household debt also remains an issue for the central bank, especially since as lawmakers earlier this month blamed BOK interest rate cuts for encouraging household borrowing to soar. A growing number of analysts see the central bank on hold, possibly throughout 2017, as interest rates in the U.S. head up.

The BOK may emphasize the diminished effects that rate cuts have on the economy compared to previous years because of structural factors such as an ageing population and rigid labour system.

Governor Lee Ju-yeol’s news conference from 11:20 a.m. (0220 GMT) will be scrutinised for comments stemming from the ongoing crisis at Samsung Electronic Co Ltd (005930.KS) after it scrapped the latest Galaxy Note 7 mobile phone this week. [nL4N1CI02C]

Editing by Eric Meijer

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