Seoul keeps interest rate steady, upgrades 2018 growth forecast

SEOUL • South Korea's central bank kept its key interest rate unchanged yesterday, as expected, and upgraded its 2018 growth forecast - but flagged concerns about economic uncertainties and soft inflation, which remain hurdles to policy tightening this year.

The monetary policy board of the Bank of Korea (BOK) voted to keep the benchmark interest rate at 1.5 per cent at what was the second to last rate-setting meeting for Governor Lee Ju Yeol before his term ends in March.

The central bank is monitoring the effects of its November hike, its first tightening in six years, and remains wary of triggering disruptive capital flows.

Mr Lee said this year's economic growth is now seen at 3 per cent, a tad higher than 2.9 per cent projected in October last year. However, the BOK lowered its 2018 consumer inflation forecast to 1.7 per cent from 1.8 per cent.

"We decided to keep rates unchanged today as there are still uncertainties inside and outside the country and it is necessary to observe the effect of these factors. Also, inflationary pressures are not high, also leading to our decision," said Mr Lee at a media conference. "Going forward, monetary policy will be kept accommodative to support economic growth."

All 17 analysts surveyed by Reuters between Jan 8 and 15 predicted the BOK would keep the seven-day repurchase rate unchanged after raising it in November, ending a five-year easing cycle amid a sustained export boom.

South Korean policymakers are grappling with an unusual surge in the won against the US dollar and households saddled with debt after a property-buying spree, supporting analysts' views that monetary policy will remain accommodative in 2018.

The central bank is monitoring the effects of its November hike, its first tightening in six years, and remains wary of triggering disruptive capital flows.

The Korean won has soared to its highest in more than three years since the board last met on Nov 30, while consumer inflation in December remained below the bank's target of 2 per cent.

The won touched as high as 1,058.8 per dollar on Jan 8, its highest intra-day trading level since October 2014.

"The won soaring through the new year period will keep policymakers on hold for now, along with the need to monitor policy changes abroad," said fixed-income analyst Lee Jae Hyung at Yuanta Securities.

The won was muted after the BOK decision and governor's press conference, trading at 1,068.7 per dollar yesterday compared to its previous close of 1,069.3.

The benchmark Kospi was up 0.3 per cent.

REUTERS

A version of this article appeared in the print edition of The Straits Times on January 19, 2018, with the headline 'Seoul keeps interest rate steady, upgrades 2018 growth forecast'. Print Edition | Subscribe