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Bank of Korea keeps rates on hold as political uncertainty churns

Friday, November 11, 2016 - 09:38

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South Korea's central bank stayed its hand for a fifth straight month on Friday, as widely anticipated, amid an upswell of global uncertainty and a political scandal involving President Park Geun-hye that may mean trouble ahead for the economy.

[SEOUL] South Korea's central bank stayed its hand for a fifth straight month on Friday, as widely anticipated, amid an upswell of global uncertainty and a political scandal involving President Park Geun-hye that may mean trouble ahead for the economy.

A shock win by Donald Trump in the US presidential election earlier this week poses long-term risks the Bank of Korea (BOK) will need to monitor carefully.

The BOK's monetary policy committee kept its base rate unchanged at 1.25 per cent, 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 but one of 27 analysts polled by Reuters had forecast the central bank would keep its reference 7-day repurchase agreement rate on hold. The one dissenter had seen a cut to 1.0 per cent. "Under Trump, we might see inflation pick up in the US, leading to rates being hiked at a quicker pace. If the US starts tightening sooner than thought, this could impact our economy," said Seo Sang-young, an analyst at Kiwoom Securities.

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Mr Seo said rates would be kept unchanged through end-2017 as a result.

Markets were unfazed by the widely expected decision.

South Korea's economy, Asia's fourth-largest, is on course for a recovery, but there are headwinds. Ongoing restructuring of the country's shipping and shipbuilding industries, for example, is expected to result in severe job losses.

Mr Trump's policies have fed fears of a surge in global trade protectionism, which would likely hit major Korean exporters such as Samsung Electronics Co Ltd and Hyundai Motor Co particularly hard.

This would lend a further blow to already-battered exports, struggling to recover after falling for most of the past two years as global demand waned.

REUTERS

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