SEOUL: South Korea’s central bank kept its key interest rate unchanged at a record low 1.5 percent for an eighth straight month on Tuesday, with the local currency weakening and exports extending a year-long downward trend.
The decision had been widely expected as analysts forecast the Bank of Korea’s board members would extend a wait-and-see approach given the current volatility across global markets.
The bank has less room for additional monetary easing from its current record-low rate, with rocketing household debt and greater risk of capital outflows following the US Federal Reserve’s interest rate hike in December.
The Korean won is Asia’s worst-performing currency this year, losing 3.4 percent against the dollar as global funds pulled money from South Korean stocks and bonds.
Central bank governor Lee Ju-Yeol said that while there was room for an additional rate cut, the benefits of such a move remained uncertain.
“Korea also may experience unexpected side effects from a rate cut, as seen in Japan where adopting a minus rate is not working as planned,” Lee said.
South Korean exports, which account for half the country’s gross domestic product, plunged 18.8 percent year-on-year in January—extending a 13-month losing streak.
Noting the slump in exports may have been caused by weak global demands, Lee said the current inflation rate of below 1.0 percent did not warrant an immediate change in monetary policy.
He also referenced the recent upsurge in tensions on the Korean peninsula following North Korea’s recent nuclear test and long-range rocket launch.
While the situation did not appear to have influenced capital outflows so far, Lee said the bank would keep a close eye on developments over the coming months.
“We cannot rule out the possibility that North Korea-related risks may be played out in a very different manner than in the past when coupled with other external conditions.
“The BoK will closely watch against such a possibility and take necessary measures when the need arises,” Lee said. AFP