The Bank of Korea kept its interest rate unchanged on Thursday as uncertainty about future growth increased due to the changes in the US trade policies and the implementation of government stimulus measures, while the currency showed a high volatility over a short period of time.
The monetary policy board, governed by Rhee Chang Yong, decided to maintain the Base Rate at 2.75 percent, as widely expected.
The bank had previously reduced the benchmark rate by a quarter-point in February.
“…as the downside risks to growth have intensified, the Board will determine the pace and scale of any further Base Rate cuts after examining domestic and external conditions in our May forecast,” the bank said.
Policymakers noted that downside risks to growth increased due to the rapid shifts in the US trade policies and the response of major economies within a short period of time.
Further, the exchange rate of won showed rapid volatility and it has become important to pay particular attention to its impact on financial stability.
The board judged that it is necessary to be cautious about the impact of rate cuts on foreign exchange market expectations. Inflation is forecast to remain within the forecast due to falling oil prices and subdued demand.
Although household debt is set to gradually stabilize after a temporary increase, it is necessary to remain cautious about the possibility of a rebound under accommodative monetary conditions, the board observed.
There are good reasons to believe that today’s hold does not mark the end of the central bank’s easing cycle, Capital Economics economist Gareth Leather said.
The economist viewed that the economy is certainly in need of more support and the bank has nothing to worry about on the inflation front.
ING economist Min Joo Kang said that an economic slowdown could help reduce household debt and slow inflation. A May rate cut is possible, but the Korean won exchange rate is key, the economist added.
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