South Korea's central bank said Thursday that it will maintain the current monetary easing stance but may raise rates if market conditions are favorable.
"We plan to maintain our stance of monetary policy accommodation, as the inflationary pressures on the demand side are not expected to be high, although the trend of domestic economic growth is likely to continue," the Bank of Korea said in a report submitted to the National Assembly earlier in the day.
Still, the central bank said "conditions are gradually being created" for tightening its monetary easing stance, but it will monitor whether the trend of improved economic conditions is steady and can be sustained amid uncertainties such as geopolitical risks and trade-related developments with major countries.
The latest assessment came three weeks before the BOK is set to hold its rate review session to decide whether to keep or adjust the all-time low rate of 1.25 percent.
In October, the BOK kept its policy rate at that record low level, extending its wait-and-see approach for the 16th consecutive month.
The BOK said it may take a monetary tightening stance if the economy shows signs of robust recovery, a comment widely seen as signaling a rate rise by the central bank over the long haul.
The central bank also said in the report to the parliament that it cannot rule out increased volatility in financial markets if there are additional provocations by North Korea.
Tensions spiked on the Korean Peninsula following North Korea's sixth and most powerful nuclear test and a series of ballistic missile tests. A war of words between the leaders of North Korea and the US has stoked fears of a possible military conflict on the peninsula.
These tensions have subsided recently, however, as North Korea has not carried out any provocation since Sept. 15, when it launched a Hwasong-12 intermediate-range ballistic missile over Japan into the North Pacific Ocean.
Separately, the BOK said it will seek measures to keep the country's household debts at manageable levels in close consultation with the government and the financial regulator, noting households heavily indebted to banks and other lenders could face increased burdens in the case of rate increases.
South Korea's overall debt incurred by households came to 1,388.3 trillion won ($1.22 trillion) as of the end of June, up 10.4 percent from a year earlier, according to data compiled by the Bank of Korea.