The Bank of Korea’s (BOK) board held the policy rate steady percent in a unanimous vote on Thursday, a widely expected move in line with forecasts by all but two of the 31 analysts polled by Reuters.
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The bank said in a statement that the domestic economy maintained a modest recovery trend thanks to stronger domestic demand, but it noted that external uncertainties lingered such as financial market instability in emerging economies, including South Korea, caused by the USA rate increase.
Job growth in South Korea hit the highest in five months, with the unemployment rate slightly falling, a government report showed on Wednesday. According to a Korea Financial Investment Association survey of 111 fixed-income experts, 96.4 percent of respondents predicted the rate on hold.
The Bank of Korea (BOK), which has cut its rate by 50 basis points this year, also repeated that it expects domestic demand to continue to support a recovery of the country’s economy while “the trend of declining exports has persisted”.
The fourth largest economy in Asia expanded by 1.2 percent in the July-September period, the fastest on-quarter growth since the second quarter of 2010, and up from just 0.3 percent in the April-June period. It topped the BOK’s earlier forecast of 1.1 percent.
Analysts at HSBC Holdings Plc, Nomura Holdings Inc., and Barclays Plc earlier this month pushed back their 2015 rate-cut forecast to 2016 after a 1.2 percent bounce in quarterly gross domestic product.
Credit card usage jumped 13.1 percent in October from a year earlier, and passenger auto sales in the local market surged 22.7 percent during the month.
“However, we think Korea’s high and rising household debt will make the BoK reluctant to cut rates further”. Overseas sales, which account for about half of GDP, fell every month in 2015 as the global economy slowed and low oil prices reduced revenue from petrochemical goods sales.
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Although Lee has said he’s not seeking to depreciate the currency or boost exports through shifts in monetary policy, weak shipments are a reason a few economists say the central bank eventually will lower borrowing costs next year. “Additional rate cuts could encourage households to take on more debt, which would add to risks in the financial sector”.
