South Korea's central bank keeps rates unchanged as it weighs weak yen

SEOUL (Reuters) - South Korea's central bank kept its policy interest rate steady on Thursday, as widely expected, to assess the effects of this year's two rate cuts as well as policy decisions in the United States and Japan.

The Bank of Korea's monetary policy committee left its base rate unchanged at 2.00 per cent, a media official said without elaborating. Governor Lee Ju-yeol is due to hold a new conference from 11:50 a.m. (0250 GMT).

Markets showed little reaction as investors turned their focus to indications of future policy direction from the governor's news conference.

"We think downside risks to the Bank of Korea's growth outlook have increased. Given the yen weakened significantly after the Bank of Japan announced additional easing on October 31, Korea exporters may face greater price pressures over the coming months," said Ronald Man, an economist at HSBC in Hong Kong.

The central bank is now more focused on the effects of policy decisions from the United States and Japan, especially as the yen has weakened dramatically since the Bank of Japan expanded its stimulus programme last month.

Policymakers have been fretting over measures to counter risks to South Korean export competitiveness but the central bank has balked at slashing interest rates more as its governor said the effects of rate cuts on the real economy are limited.

The Bank of Korea has already cut interest rates twice this year, in August and October, in moves widely seen as giving in to pressure from the government to boost its growth policies.

Stimulus measures by the government and the central bank, including plans to boost public spending and interest rate cuts have encouraged consumers to spend, with South Korea's bank lending to households rising by the largest amount on record in October.

The Bank of Korea lowered next year's growth forecast to 3.5 per cent from 3.8 per cent in October, but it is still close to the economy's potential growth rate, which the central bank has said is somewhere in the high 3-percent range.