Bank of Korea holds key rate at record low as it weighs data

The logo of the Bank of Korea is seen on the top of its building in Seoul.
The logo of the Bank of Korea is seen on the top of its building in Seoul.PHOTO: REUTERS

SEOUL (BLOOMBERG) - The Bank of Korea held its key interest rate unchanged at a record low for a 10th consecutive month as policy makers opted to wait and see whether recent signs of improvement translate into economic growth.

The decision to keep the seven-day repurchase rate at 1.5 per cent was forecast by 17 of 20 economists in a Bloomberg survey. Three projected a cut to 1.25 per cent. The central bank later on Tuesday (April 19) will also release updates of its growth and inflation projections for 2016. Earlier forecasts were for 3 per cent expansion and 1.4 per cent price rises.

The meeting was the last rate decision for the majority of the seven board members, which added weight to the expectations for holding the key rate unchanged. Four members including Ha Sung Keun - the sole dissenter calling for a rate cut in the past two months - will leave the bank as their terms end. New members will join the meetings starting in May.

Tuesday's gathering also was the first session after a parliamentary election that left President Park Geun Hye's ruling Saenuri party short of a majority. This is a setback for the government, which has been urging lawmakers to pass legislation to reform the labor market and service sector. While economic data has been disappointing this year, the degree of weakness in the latest figures for exports and industrial production has eased.

"The central bank will need time to monitor domestic growth conditions, sustainability of high household debt levels, and the impact of recent parliamentary elections," Trinh Nguyen, a Hong Kong-based economist for Natixis Asia Ltd., said in a report before the decision. "While data is showing signs of stabilization, the economy is not out of the woods," Mr Nguyen wrote, adding that a rate cut is likely in May.

Governor Lee has said that the central bank is cautiously managing monetary policy given the volatile economic environment and that it could lower its 2016 growth projection.

Exports fell about 8 per cent in March from a year earlier, following a 12 percent drop the previous month. Factory output unexpectedly expanded 2.4 per cent in February from a year earlier, while consumer and business confidence data improved for the first time in several months.

While most analysts expected no change in rates for April, Credit Suisse Group, HSBC Holdings and DBS Group Holdings are among those forecasting a rate cut this quarter, as they see the recovery losing momentum.

The won strengthened 1 per cent against the US dollar in the past month while weakening 1.3 per cent versus the yen, according to data compiled by Bloomberg as of early Tuesday in Seoul. The yield for three-year government debt rose five basis points in April to 1.5 per cent as of market close on Monday.