South Korea Holds Rates Again as Uncertainty Reigns

South Korea's central bank on Tuesday held interest rates steady for a third consecutive month after a series of steep cuts, as expected, saying that though the economic fall had slowed the outlook was still very uncertain.

Korea, Korean Flag
Korea, Korean Flag

A media official from the Bank of Korea announced the monetary policy committee's decision to hold the base rate steady at a record low of 2.00 percent. Governor Lee Seong-tae is due to hold a news conference later in the session.

The central bank issued a slightly more optimistic assessment than last month of the state of Asia's fourth-largest economy, but warned against bets it had completely turned the corner.

"The decline in the domestic economy is slowing markedly," the Bank of Korea said in a statement. "We view the uncertainty surrounding the economy as high, with upside and downside risks existing together."

Analysts said the aggressive rate-cutting cycle that started last October had reached its bottom, with the central bank likely to keep rates on hold for at least the rest of this year until domestic demand takes off for a sustained recovery.

"I don't believe there is much room for a rate cut in the near future. The downward trend of the economy has been easing, although buoyant financial markets have yet to filter through to the real economy," said Hwang Tae-yeon, a fixed-income strategist at Tong Yang Securities.

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All 12 analysts in a Reuters poll had forecast the central bank would hold the rate steady, judging that both the economy and financial markets have stabilized but a strong recovery was not yet in sight.

The Bank of Korea had slashed the base rate by a total of 3.25 percentage points from early October until February in tandem with a worldwide central bank policy-easing campaign to combat the worst global downturn in decades.

Growing optimism that the global economy has at least passed the low point of the downturn has sparked rallies in equity markets worldwide in recent months.