Bank of Korea holds key rate at record low

THE BANK of Korea (BoK) lowered its forecasts for economic growth and inflation, leaving the door open to cut borrowing costs further after holding its key interest rate unchanged at a record low on Tuesday.

The decision to keep the seven-day repurchase rate at 1.5% was forecast by 17 of 20 economists in a Bloomberg survey.

Governor Lee Ju Yeol said yesterday that while this rate is accommodative, there is still room to lower it. It hasn’t moved since June last year.

Tuesday’s policy meeting was the last for the majority of the seven board members, and the first since a parliamentary election that left President Park Geun Hye’s ruling Saenuri party short of a majority. Citing a weakerthan-expected first quarter, the central bank reduced its estimate for gross domestic product growth this year to 2.8%, from 3% previously, and trimmed the inflation outlook to 1.2%, from 1.4%.

“Recent economic data have shown some signs of improvement, which reduced the pressure on the BoK to cut rates today,” Krystal Tan, an economist in Singapore at

Capital Economics, wrote in a research note after the decision. “Nonetheless, the economy is still in a fragile state. Exports have remained very weak, even if the pace of decline has slowed. For now, we think further easing is more likely than not in the coming months.”

POLICY STATEMENT

The bank released a policy statement shortly after the rate announcement.

Consumption and economic sentiment appear to be improving somewhat South Korea’s economy will show modest improvement Uncertainties to the nation’s growth path are high Inflation will remain below the 2% target for now Household debt rose more than in recent years

“It is clear that the current interest rate is accommodative,” Lee told reporters. “The issue here is whether we make the rate more accommodative or not.”

Responding to a question about the Saenuri party’s suggestion that the BoK buy more bonds to support corporate restructuring, Lee said it’s not time for such action.

NOT UNANIMOUS

Tuesday’s decision to hold rates unchanged wasn’t unanimous, Lee said. Ha Sung Keun was the sole dissenter in calling for a rate cut, as did in previous months. He is among the four whose terms are ending. New members will join policy meetings starting in May.

“It seems the BoK wants to save their rate-cut option,” said Stephen Lee, a Seoul-based economist for Samsung Securities Co. “Investors who had expected a cut in May or June may be postponing their calls.”

Exports fell about 8% in March from a year earlier, following a 12% drop the previous month. Factory output unexpectedly expanded 2.4% 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 AG, HSBC Holdings Plc and DBS Group Holdings Ltd. are among those forecasting a rate cut this quarter, as they see the recovery losing momentum.

The won gained 1.1% against the dollar to 1,137.95 as of 1: 05 p.m. in Seoul, according to data compiled by Bloomberg. It’s appreciated more than 2% over the past month.

Lee said in his press conference that it is the role of foreign exchange authorities to prevent excessive movements in the currency. He said the BoK will closely monitor the market.