Bank of Korea holds interest rate at record low

[SEOUL] South Korea's central bank left its benchmark interest rate unchanged at a record low of 1.5 per cent on Thursday, as officials monitor the economic fallout from an outbreak of the Mers virus.

The decision to freeze the rate was widely expected after the Bank of Korea (BOK) lowered its key rate by 0.25 basis points last month, the fourth cut since last August.

The Middle East Respiratory Syndrome (Mers) outbreak has killed 35 and infected 186 people in Asia's fourth-largest economy since the first case was reported on May 20, in the largest outbreak outside Saudi Arabia.

Local businesses including shopping malls, restaurants and cinemas reported a sharp drop in sales as people shunned public venues with large crowds.

"Looking at the Korean economy ... consumption has declined significantly and the sentiments of economic agents have worsened," the BOK said in its policy statement Thursday.

The bank "forecasts that the domestic economy will show a trend of recovery going forward ... but judges the uncertainties surrounding the growth path to be high," it added.

The government announced last week a 22 trillion won (S$26.7 billion) stimulus package, much of which was aimed at supporting businesses hurt by the MERS crisis.

And central bank governor Lee Ju Yeol said last month that Mers, the Greek debt crisis and a potential rise in interest rates by the US Federal Reserve all added uncertainty to Korea's economic outlook.

The government recently slashed its 2015 economic growth forecast to 3.1 per cent from its December estimate of 3.8 per cent.

Inflation has remained stubbornly below the central bank's target rate of 2.5 to 3.5 per cent for almost three years, prompting concerns over deflation.

AFP