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UPDATE 2-Bank of Korea stands pat and keeps cautiously upbeat view
October 15, 2015 / 4:22 AM / 2 years ago

UPDATE 2-Bank of Korea stands pat and keeps cautiously upbeat view

* Base rate kept at 1.50 pct (Reuters poll 1.50 pct)

* Bank of Korea slightly cuts 2015, 2016 growth views

* Governor Lee says growth downgrade due to weak Q2

* Bond futures rise as rate cut view persists (Updates throughout after news conference)

By Christine Kim and Choonsik Yoo

SEOUL, Oct 15 (Reuters) - South Korea’s central bank left its key interest rate at a record low on Thursday, offering a cautiously optimistic view of the economy as it looks forward to recovering domestic demand but heightened global uncertainty.

The Bank of Korea’s monetary policy committee unanimously kept its base rate unchanged at 1.50 percent even as the central bank trimmed economic growth forecasts by 0.1 percentage point each for this year and next year.

Governor Lee Ju-yeol told reporters the local economy would maintain a gradual recovery as solid domestic demand and resilient advanced economies would offset weakness in the emerging countries and commodity producers.

Bond futures <0#KTB:> prices ticked up as U.S. bond prices rose and Lee’s remarks failed to persuade investors to abandon their expectations of another interest rate cut soon.

The won rose due to the dollar’s broad decline globally.

“Governor Lee sounded like his views have not changed at all compared to September and appeared to have quite a neutral stance,” said Stephen Lee, economist at Samsung Securities.

Fourteen out of the 29 analysts surveyed by Reuters before Thursday’s meeing forecast the Bank of Korea would cut the policy rate to a fresh record low between October and late 2016, which would be an eighth cut since the current easing cycle started in 2012.

The Bank of Korea now expects South Korea’s gross domestic product to grow by 2.7 percent this year and 3.2 percent next year, compared with 2.8 percent and 3.3 percent forecast in July.

Governor Lee said the downgrade was caused by weak growth in the April-June quarter, when consumption was hit hard by an outbreak of the deadly MERS virus.

Asked if an anticipated U.S. interest rate increase would discourage the Bank of Korea from cutting its rate, Governor Lee declined to answer outright but noted U.S. monetary policy was one of many factors the Bank of Korea watches.

The Bank of Korea’s revised economic growth forecast matched the latest projection from the International Monetary Fund but came slightly above the market’s views, which are centering around 2.5 percent and go as low as 2.0 percent.

South Korea’s economy grew 3.3 percent in 2014.

Those expecting no further rate cut cite heavy and growing household debt, a likely rebound in inflation, and a risk of capital outflow as the main deciding factors.

Additional reporting by Yeawon Choi; Editing by Eric Meijer

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