Published: Wednesday, 11 Nov 2009 | 9:59 PM ET

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South Korea's central bank left its key interest rate at a record low on Thursday, as expected, under pressure from domestic and global policymakers not to implement a hasty exit plan despite rapid economic recovery.

The Bank of Korea kept unchanged its seven-day repurchase agreement rate steady at a record-low 2.0 percent for a ninth consecutive month.

A Bank of Korea media official announced the monetary policy committee's decision without elaborating. Governor Lee Seong-tae is due to hold a news conference shortly.

In a statement after a decision, the central bank said that recent economic activity showed clear signs of recovery but the H1N1 flu outbreak meant there was still uncertainty.

A Reuters poll this week showed 13 out of 14 analysts expected the Bank of Korea to leave its seven-day repurchase agreement rate steady this week while most forecast one or two rate hikes by the end of March.

"The Bank of Korea should see more concrete evidence of a recovery in domestic demand before raising rates and feel pressure from the Blue House and the finance ministry to increase rates," said June Park, an economist at Woori Investment & Securities.

"But with the economy recovering faster than other countries, the Bank of Korea will raise rates in the first quarter of next year," he added.

The decision came as governments at home and abroad pledged to maintain accommodative policies until signs of a sustained recovery were clearer.

This month, the Group of 20 policymakers promised to keep emergency support for their economies in place until recovery was assured and Asia-Pacific ministers warned that the global crisis was far from over.

In recent months, market had been pricing in a rate rise by South Korea's central bank as soon as this month after the central bank raised alarm bells about fast rising house prices.

But it toned down its hawkish rhetoric President Lee Myung-bak and top government officials repeatedly urged the central bank to be extremely cautious about withdrawing from its super-loose policies.

Still, the Bank of Korea is expected to increase interest rates in the first quarter of the next year by at least 25 basis points by the end of March on a recovery in Asia's fourth-largest economy.

On Wednesday, fresh signs a recovery is taking hold, including in mortgage lending and a fall in the jobless rate, cemented the expectation.

The Bank of Korea had slashed rates by a total of 3.25 percentage points over four months since October 2008 in the wake of the worst global financial crisis in decades.

(Reporting by Seo Eun-kyung and Cheon Jong-woo; Editing by Jonathan Thatcher)
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Thursday, 12 November 2009 02:02:09
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