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South Korea holds interest rate at record low

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South Korea's central bank kept its key interest rate unchanged at a record low 1.5 per cent for an eighth straight month Tuesday, with the local currency weakening and exports continuing a year-long downward trend.

[SEOUL] South Korea's central bank kept its key interest rate unchanged at a record low 1.5 per cent for an eighth straight month Tuesday, with the local currency weakening and exports continuing a year-long downward trend.

The decision had been widely expected as analysts forecast the Bank of Korea's board members would extend a wait-and-see approach given the current volatility in Asian stock markets.

The bank has less room for additional monetary easing from its current record-low rate, with skyrocketing household debt and greater risk of capital outflows following the US Fed's rate hike.

The Korean won is Asia's worst-performing currency this year, losing 3.4 per cent against the dollar as global funds pulled money from South Korean stocks and bonds.

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"The board needs some time to evaluate January economy data and to gauge the impact of financial market uncertainties," Chang Jae Chul, a Seoul-based economist for Citigroup Inc., told Bloomberg News.

"My baseline scenario is for a cut in April, but the possibility for a change in March is rising. There are concerns about a looming global recession," Chang said.

South Korean exports, which account for half the country's GDP, plunged 18.8 per cent year-on-year in January - extending a 13-month losing streak.

AFP

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