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BOK holds key rate steady at 1.25% in May

South Korea's central bank on Thursday held its key rate steady in May as the new government is pushing to expand fiscal spending to help revive Asia's fourth-largest economy.

In a widely expected move, the monetary policy board of the Bank of Korea unanimously voted to keep the key rate at 1.25 percent, extending its wait-and-see approach for the 11th consecutive month.
The Bank of Korea (Yonhap)
The Bank of Korea (Yonhap)

In June last year, South Korea's central bank made a surprise rate cut, citing a need to stimulate the lackluster economy amid a prolonged economic slowdown.

The board said it will carry out monetary policy to ensure that the recovery of economic growth continues and consumer price inflation can be stabilized at the target level over a medium-term horizon, while paying attention to financial stability.

"As the inflationary pressures on the demand side are not expected to be high although the trend of domestic economic growth is likely to expand somewhat, the board will maintain its stance of monetary policy accommodation," the board said in an English-language statement.

The BOK said economic activity is expanding at a faster-than-expected pace on the back of global economic recovery, adding that exports continue a trend of robust increase.

The bank said that the near-term growth path is likely to be slightly higher than that in the April projection and that consumer prices are expected to rise at a rate near the 2 percent inflation target.

In April, the central bank raised its growth outlook for the country's gross domestic product to 2.6 percent for 2017, up 0.1 percentage point from its previous estimate released in January.

The freeze came two weeks after liberal President Moon Jae-in took office with a pledge to get 10 trillion won ($8.9 billion) in extra budget this year to help create new jobs in the public sector.

The board also said it will "closely monitor" the progress of monetary policy normalization by the US Federal Reserve, conditions related to trade with major countries, the direction of Moon's economic policies and household debt, as well as geopolitical risks.

In March, the US Federal Reserve raised its key rate by a quarter of a percentage point to a target range of 0.75 to 1 percent. It also signaled that additional hikes would be made in a gradual manner later this year.

On Thursday, BOK Gov. Lee Ju-yeol vowed not to "mechanically raise" the key rate in case of a US rate hike.

South Korea's household debt reached a record high of 1,359.7 trillion won at the end of the first quarter, according to data compiled by the BOK. (Yonhap)
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