Asia Economy

Bank of Korea leaves rate unchanged as it weighs housing boom, past cuts

Key Points
  • The Bank of Korea's policy board held the base rate  steady at 1.25%.
  • That's in line with projections from all 33 analysts surveyed by Reuters.
  • The won and stocks hardly budged following the rates decision.
The South Korean currency, the won
Nora Carol Photography | Getty Images

South Korea's central bank kept its benchmark rate steady on Friday, as largely expected, as it assesses the impact of earlier easings amid concerns that rock-bottom interest rates meant to power a recovery could be stoking a property bubble.

Annual inflation hit a record-low last year but analysts are split on whether there would be further easing, not least because a deal signed by the United States and China on Wednesday could entrench a recovery in the Korean economy.

The Bank of Korea's policy board held the base rate  steady at 1.25%, as predicted by all 33 analysts surveyed by Reuters, standing pat for a second meeting following two reductions in July and October last year.

The focus is on Governor Lee Ju-yeol's outlook and whether he faces dissenting calls for a rate cut as he is scheduled to speak at a press conference at 0220 GMT.

The won and stocks hardly budged following the rates decision.

Despite earlier rate cuts, the BOK expects the economy to have expanded only 2.0% in 2019, the slowest in a decade.

Exports shrank for the 13th month in a row but December saw the smallest decline since April, raising hopes that global trade may be turning a corner after Asia's fourth largest economy took a particularly hard hit on faltering demand from China and for its chips.

In a possible sign that the worst may be over, Samsung Electronics said last week its preliminary quarterly earnings beat estimates in the three months ending December.

Fourteen of the 33 analysts polled said they anticipated another cut within the year, with six predicting it would likely happen in the first quarter. Another 15, however, see no change for the year.

"The room for additional rate cuts is diminishing, due to the rise in international oil prices and the rebound in domestic property prices," said Ma Tieying, an economist at DBS, who sees no change in the policy rate this year.

"The BOK would find it necessary to assess the side effects of ultra-low interest rates and tread carefully on its additional easing steps."

While the central bank still favors a rate cut in any fresh move, some members of the policy board are wary that ultra-low rates could stoke a property bubble and undermine financial stability.

The median apartment price in Seoul in December 2019 was up almost 50% since President Moon Jae-in took office in May 2017.

Lee's speech will also be watched by investors for an announcement on the replacement of four board members, whose terms are due to end in April. The two of the four members to be replaced are widely known as doves.