Governor Lee Ju-yeol told reporters after deciding to freeze the benchmark interest rate at an all-time low of 1.5 percent.
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“The board forecasts that the domestic economy will continue its recovery going forward, centering around domestic demand activities, but in view of external economic conditions judges the uncertainties surrounding the growth path to be high”, it said in a statement after its monthly rate-setting meeting. Overnight, weak USA retail sales and producer prices data raised doubts that the Federal Reserve would delay hiking interest rates until 2016. Factory output unexpectedly gained 0.3 percent in August from a year earlier, compared with a 3.2 percent drop in July.
Out of 21 analysts surveyed, 17 had expected the central bank to keep the rate unchanged in October while the remaining four had forecast a rate cut.
Later Thursday, the central bank cut its 2015 GDP growth estimate to 2.7% from 2.8%.
“Recent USA indicators, such as employment, have pointed to poorer performances than anticipated, while concerns over slowing growth in China continued to mount”.
“Still, there exists a possibility of a USA rate hike before the end of the year”. The devaluation of Chinese currency Yuan in August, economy slowdown and financial markets turmoil are taking a toll on the South Korea’s markets.
Market watchers also said the BOK appears to have considered such factors as recovering domestic demand and a high level of household debt. The central bank in South Korea kept its policy interest rates steady at a record low of 1.50 per cent early in the session, which had been largely expected. “Investors partially anxious that a surprise rates cut would increase the outflow of funds due to a wider difference in interest rates (with other countries)”, said Kim Young-jun, a stock analyst at SK Securities.
Pressure, however, still hangs on the bank to ease policy further.
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Household debt in South Korea amounted to more than 615 trillion won (S$746.3 billion) as of September, with housing loans increasing at a record pace this year. BoK is also scheduled to review the economy and its outlook.
