South Korea holds interest rate at record low

[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.

"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