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BOK holds key rate for 13th month as expected

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Published : 2014-06-12 09:59
Updated : 2014-06-12 10:42

South Korea's central bank froze the key interest rate for the 13th consecutive month on Thursday as the local economy is slowly recovering amid tame inflation. 

The monetary policy committee, led by Bank of Korea (BOK) Gov. Lee Ju-yeol, kept the benchmark seven-day repo rate at 2.5 percent as widely expected.

The policy decision is in line with an earlier poll conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency. Eighteen analysts unanimously forecast the BOK to hold the base rate steady as Asia's fourth-largest economy continues to move on a moderate recovery track amid offshore risks.

South Korea saw its gross domestic product jump 3.9 percent on-year in the first quarter, quickening from 3.7 percent growth three months earlier as demand for tech and petrochemical products rose in Europe and the U.S.

The central bank predicts the local economy to grow 4 percent this year and 4.2 percent next year.

Despite signs of economic recovery, the country's inflationary pressure has remained tame. Consumer prices jumped 1.7 percent on-year in May, picking up from a 1.5 percent gain in April, but still ran below the BOK's target band of 2.5 percent to 3.5 percent.

Amid growing views the BOK will make a policy move in the second half, analysts forecast the central bank is in no hurry and instead will wait to analyze incoming economic data.

"We note that the BOK's forecast is subject to change, and therefore (Gov. Lee's) comments regarding future policy actions were not a commitment," Nomura economist Kwon Young-sun noted on the governor's remarks following the May rate-setting.

"That said, only if the Korea economy improves in line with the BOK's forecast, would the BOK hike rates."

Eleven of 18 analysts in the Yonhap Infomax poll projected the bank to leave the key rate unchanged this year, while four expected the BOK to raise the borrowing costs before year-end. Two forecast a rate cut. (Yonhap)

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