© Bloomberg. Lee Ju-yeol, governor of the Bank of Korea (BOK), speaks during a monetary policy meeting in Seoul, South Korea, on Thursday, May 24, 2018. The Bank of Korea kept interest rates at 1.5% as forecast by all 18 economists surveyed by Bloomberg. Photographer: SeongJoon Cho/Bloomberg
(Bloomberg) — South Korea’s central bank kept its key interest rate unchanged as it assesses the impact of an increase in borrowing costs in November and mounting economic risks at home and abroad.
All but one of 25 analysts surveyed by Bloomberg had forecast the Bank of Korea would keep the seven-day repurchase rate at 1.75 percent on Thursday, while one projected a 25-basis-point cut.
Governor Lee Ju-yeol will give a press conference later this morning in Seoul and the central bank will update its projections for growth and inflation, providing potential hints to the course of policy this year.
Lee has already indicated that the BOK’s 1.7 percent forecast for price gains this year may be too high, given the sharp drop in oil. Most economists also expect the BOK to cut its estimate for gross domestic product to expand 2.7 percent, largely due to weakening exports.
“Even though worry about the economy is rising, the Bank of Korea will take a breather and see how the November hike plays out,” Yoon Yeo-sam, a fixed-income analyst at Meritz Securities Co. in Seoul, said before the decision.
Lee has also suggested that a somewhat less-hawkish outlook for monetary policy in the U.S. could become a bigger swing factor for him and his board. Rates in the U.S. that are significantly higher than those in Korea tend to encourage capital outflows from the Asian economy, putting pressure on the BOK to raise its benchmark.
President Moon Jae-in’s government has vowed to shore up the economy amid weakness in hiring and investment. A stronger-than-expected growth figure in the fourth quarter was largely attributed to aggressive spending by the government.
Most central bank watchers think Korean borrowing costs will remain unchanged this year.
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