Bank of Korea keeps rates unchanged for 11th month, in line with forecasts

[SEOUL] South Korea's central bank kept interest rates unchanged for a 11th straight month on Thursday, opting for stability in its first policy review since President Moon Jae In's inauguration.

The Bank of Korea's monetary policy committee held its base rate steady at 1.25 per cent, a media official said without elaborating. Governor Lee Ju-yeol will hold a news conference from 11.20am (0220 GMT).

All 19 economists surveyed by Reuters expected no change in the base rate on Thursday as the board's seven members met for the first time since President Moon took office on May 10.

Nine of them foresaw a rate hike next year.

The base rate has been on hold since a 25 basis point cut in June 2016.

"The BOK will stay on hold through the first quarter of next year," said Kim Jina, fixed-income analyst at IBK Securities. "The next policy direction will be a hike, but the bank will keep its policy easy to support growth this year and monitor the pace of interest rate tightening by the Federal Reserve," Kim said.

After the BOK decision, both South Korean won and shares increased gains. The local currency was up 0.77 per cent at 1,118.1 per dollar while the KOSPI was up 0.79 per cent at 2335.61 points.

Market expectations for policy easing have been waning as exports surged for a sixth straight month through April, with when inflation hovering near the central bank's target of 2 per cent.

The bank in April raised its growth outlook for this year to 2.6 per cent from 2.5 per cent estimated earlier.

Record household debt suggests the central bank would have little inclination to set rates any lower and encourage yet more borrowing.

Data released earlier this week showed household debt soared 11.1 per cent in the March quarter from a year earlier.

The focus of attention has turned to fiscal policy with the new administration saying it will draft a supplementary budget to aid job creation. "The bank's rhetoric is likely to maintain a wait-and-see stance, absorbing the policy implications of the newly elected president," James Lee, an economist at HSBC said before the rate decision.

REUTERS