BoK holds off tightening policy on jobs, inflation worries
SEOUL: The Bank of Korea (BoK) kept monetary policy unchanged as expected, and its chief hosed down expectations of further policy tightening this year, in the face of a jobs crisis and inflation still stubbornly below target.
Governor Lee Ju-yeol said growing doubts about job market recovery, already straining consumer sentiment, together with weak inflationary pressure from domestic demand meant policy makers should stay in a wait-and-see mode.
Government bond prices rallied across the board, with yields in every maturity dropping as Governor Lee’s conference began at around 0220GMT. The September contract on three-year treasury bond futures increased 0.13 points to trade at 108.80 as of 0320GMT.
“Consumer inflation will be below projections made in July, as government is increasing welfarerelated subsidies,” Lee told a news conference after the BoK held its policy rate KROCRT=ECI at 1.5 per cent in a six-to-one vote.
Lee Il-houng was Friday’s sole dissenter on the seven-member board, voting to raise rates. He voted against the majority at the BoK’s July meeting. 13 out of 19 respondents in a Reuters poll foresaw at least one dissenter.
Kong Dong-rak, an economist at Daishin Securities, said Lee’s comments on inflation trailing expectations have tempered market expectations of a hike, although rising interest rates in the United States have raised concerns about capital outflows.
“Lee openly made it clear that inflation will be lower. As such, raising policy rates isn’t an easy option even though a higher rates could help stabilise financial markets,” Kong said after Lee’s news press conference.