Bank of Korea holds rate at record low

The Pak Banker - - COMPANIES/BOSS -

The Bank of Korea held its key in­ter­est rate un­changed at a record low as it gauges the health of the econ­omy and the im­pact of China's cur­rency de­val­u­a­tion. Author­i­ties in Seoul are closely mon­i­tor­ing volatil­ity in fi­nan­cial mar­kets fol­low­ing the drop in the yuan, which the cen­tral bank said Thurs­day adds to un­cer­tain­ties for Korea.

"It's clear that the BOK ac­knowl­edges China's move as a risk to its growth path," said Lee Sang Jae, a Seoul-based economist for Eu­gene In­vest­ment & Se­cu­ri­ties Co. "The chance of a rate cut is now higher with the yuan de­val­u­a­tion."

Low bor­row­ing costs have failed to boost eco­nomic ex­pan­sion in Korea, with gross do­mes­tic prod­uct in­creas­ing just 0.3 per­cent in the sec­ond quar­ter and ex­ports fall­ing ev­ery month this year. Debt is in­creas­ing faster than in­comes, with bank lend­ing to house­holds sur­pass­ing 600 tril­lion won ($510 bil­lion) last month.

The cen­tral bank's de­ci­sion to hold the seven-day re­pur­chase rate at 1.5 per­cent on Thurs­day was unan­i­mous, and matched the forecast of all 16 an­a­lysts sur­veyed by Bloomberg. It fol­lows four cuts in the past year that to­tal a full per­cent­age point.

Korea's won strength­ened 1.4 per­cent ver­sus the dol­lar to 1,174.40 at 12:55 p.m. in Seoul. It's weak­ened 5 per­cent against the dol­lar since the end of June, 3.6 per­cent against the Ja­panese yen and 1.9 per­cent ver­sus the yuan dur­ing the same pe­riod.

"While the ex­change rate should be de­cided on sup­ply and de­mand in the mar­ket and eco­nomic fun­da­men­tals, an ex­ces­sive move in one di­rec­tion isn't de­sir­able," said BOK Gover­nor Lee Ju Yeol. "We have pre­pared sce­nar­ios and mea­sures for global fi­nan­cial mar­ket volatil­ity and its im­pact on the do­mes­tic econ­omy." Lee didn't elab­o­rate on these.

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