Central Banks

Bank of Korea holds rates steady as growth risks rise

Key Points
  • In a widely expected decision, the Bank of Korea kept interest rates steady as policymakers shift their focus to supporting an economy facing increasing pressure from falling exports and slowing global growth.
  • A majority of analysts see the central bank staying on hold throughout this year after raising policy rates twice since the end of 2017, as weakness in exports as well as vanishing jobs keep policymakers guarded.
  • Markets largely shrugged off the widely expected decision, as investors focus on the high-stake nuclear summit between U.S. President Donald Trump and North Korean leader Kim Jong Un in Hanoi, Vietnam.
Signage for Bank of Korea (BOK) is displayed atop the central bank's headquarters building in Seoul, South Korea, on Thursday, Aug. 16, 2018.
Jean Chung | Bloomberg | Getty Images

South Korea's central bank kept interest rates steady on Thursday, a widely expected decision as policymakers shift their focus to supporting an economy facing increasing pressure from falling exports and slowing global growth.

The Bank of Korea's (BOK) monetary policy committee held its seven-day repurchase rate at 1.75 percent, in line with forecasts from 11 analysts surveyed in a Reuters poll.

Markets largely shrugged off the widely expected decision, as investors focus on the high-stake nuclear summit between U.S. President Donald Trump and North Korean leader Kim Jong Un in Hanoi, Vietnam.

A majority of analysts see the central bank staying on hold throughout this year after raising policy rates twice since the end of 2017, as weakness in exports as well as vanishing jobs keep policymakers guarded.

The BOK's cautious stance mirrors a similar shift by its global counterparts. The U.S. Federal Reserve last month signalled a pause to its tightening cycle, while policymakers in Japan, Australia, India and Philippines have turned more dovish to contain rising economic risks.

Asia's fourth-largest economy has already taken a hit from a slowdown in China and the Sino-U.S. trade war, with growth in 2018 slipping to a six-year low.

The domestic case for a hike has also been weakened by inflation trailing the BOK's target of 2 percent. Consumer price index growth marked a one-year low of 0.8 percent in January, from a year earlier.

"With economic indicators giving mixed outlook, many seem to agree sentiment is worsening so (policymakers) are in wait-and-see mode," Kong Dong-rak, a fixed income analyst at Daishin Securities, said after Thursday rate decision.

"As the BOK made it clear it will ensure financial stability, it will be difficult to see the bank easing policy rates for sometime."

Governor Lee Ju-yeol has repeatedly said a significant downturn in the economy is an unlikely scenario but the bank in January trimmed its growth forecast for this year to 2.6 percent, the lowest since 2012.

Analysts see South Korean exports falling for a third straight month in February, and by the most in nearly three years, as a cooling China dent sales of petrochemical products, chips and car components.