Korea - BOK holds key rate steady at 1.25%: ARIRANG NEWS

ARIRANG NEWS

Published on Aug 11, 2016

8월 금통위, 기준금리 1.25%로 동결
The Bank of Korea has held its key interest rate steady at 1-point-2-5 percent.
A widely expected decision as the Korean economy faces lingering uncertainties both at home and abroad,... as well as the impact of the latest government stimulus measures.

Hwang Ji-hye takes a closer look. 

Korea's central bank took a wait-and-see approach in August as it held its monthly monetary policy meeting on Thursday.

It kept its key interest rate unchanged at one-and-a-quarter percent,... leaving it at its historic low for the second straight month. The Bank of Korea's decision was in line with market expectations... that it will want to see whether the government's stimulus package coupled with a rate cut in June... will help bolster the economy that's been in the doldrums. 

The top central banker said he is fully aware of the risks stemming from low key rates. "Financial watchdogs are implementing and reviewing various measures to tackle household debt. The BOK is also closely monitoring the effects of these measures, as we agree it's not desirable for this debt to rise for a prolonged period of time. If needed, the bank will also consider taking measures." Despite the government's tighter guidelines on loans, they have not been able to slam the brakes on snowballing debt levels.

The total amount tops one trillion U.S. dollars.

Concerns are growing that a possible rate hike from the U.S. Federal Reserve could exacerbate the problem as Korea will eventually face the need to follow suit due to risks of massive capital outflows. But with external uncertainties like Brexit and better-than-expected second quarter growth mainly boosted by the government efforts to stimulate spending, speculation for another rate cut in the last quarter this year is on the rise. "Without the swift passing of the supplementary budget, I don't think that the recovery will continue so to the second half of the year the BOK might see some downside risks and they will give more dovish comments."

And although being very cautious, the top central banker did leave the door open for additional rate cuts. "While the BOK governor said it's true that the country's key rate is inching towards its so-called lower bound after a series of gradual rate trims over the years... he added that there's still room for more easing down the line.

Hwang Ji-hye, Arirang News."