The central bank retained the seven-day repo rate at 2% as expected. The last change in the interest rate was a 50 basis point reduction in February. The central bank has reduced the key rate by 3.25 percentage points since October 2008. Many economists expects the BoK to stay pat for several months ahead and to hike next year.
BoK governor Lee Seong-Tae expressed concern over housing market. The monetary policy stance would remain accommodative even if the policy rate is raised from the record low, said Lee.
Domestic economic activity showed signs of improvement after global economic situation progressed. As domestic demand and exports staged a recovery, production increased. However, uncertainty as to the economic growth path still remains.
On September 3, the BoK had raised economic growth for the second quarter to 2.6% from 2.3%.
In August, annual inflation rose to 2.2% from July’s 1.6%. At the same time, core inflation was 3.1%, down from 3.2% in the prior month. Today, the central bank said consumer price inflation is likely to remain at a generally stable level.
Looking forward, the Monetary Policy Committee said it will maintain the accommodative policy stance for the time being.
On September 2, Fitch Ratings had raised the sovereign rating outlook of South Korea to stable from negative citing an improvement in the sovereign credit fundamentals compared to the ‘A’ peer group. The long-term foreign currency Issuer Default Rating was affirmed at ‘A+’ and long-term local currency IDR at ‘AA’.
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