South Korea holds rates at 1.75pc

Friday, May 31, 2019

 South Korea's central bank left its policy rate unchanged at 1.75 percent today amid lingering concerns over weaker economic growth, but prospects for a rate cut grew as one board member cast a dissenting vote.

The monetary policy board of the Bank of Korea (BOK) voted to leave the bellwether rate steady for the sixth straight month after raising it by a quarter percentage point in November last year, Yonhap reports.

The BOK's wait-and-see stance had been widely expected as South Korea's economy shows some signs of a downturn in exports and tepid domestic demand amid protracted U.S.-China trade tensions.

There are growing arguments for the BOK to cut the key rate as an escalating trade feud between the United States and China is hurting global demand for South Korean goods.

But some analysts said the BOK is unlikely to ease its monetary policy anytime soon, citing risks of capital flight as a rate cut would help facilitate the Korean won's decline against the U.S. dollar.

BOK governor Lee Ju Yeol told reporters that Cho Dong-chul, who is considered the most dovish among the seven-member monetary policy board, called for the central bank to cut its key rate by a quarter percentage point.

Many analysts view a dissenting vote as signaling a possible change in the BOK's policy in the coming months.

Lee, however, cautioned against reading too much into the dissenting vote, saying it is "a bit forced to view it as a signal" of monetary easing.

"It is not a situation where (the BOK) copes with a rate cut," Lee told reporters.

Lee expected the Korean economy to recover later this year, helped by expansionary fiscal policies and a steady recovery in exports and facility investment.

Yet Lee acknowledged that growing uncertainties over the U.S.-China trade feud are also concerns.

"Compared with economic forecasts in April, there is a more worrisome situation," Lee said. "Uncertainties concerning the forecast path have risen, largely due to the escalation of the U.S.-China trade dispute."

Lee said the BOK needs to consider financial stability at home, as well as global economic uncertainties, citing a "very high" level of household debt.

Although Lee stopped short of providing an obvious clue for a future rate cut, some analysts anticipated that the BOK may cut the key rate later this year.