BOK keeps base rate unchanged at 2 pct

In a widely expected move, South Korea's central bank left the base rate unchanged at a record low of 2 percent on Thursday as it juggles a mix of economic factors ranging from growing household debt to falling global oil prices.

"The monetary policy committee thought it was desirable to keep the base rate at the current level to monitor recent changes in external circumstances, especially the movement of global oil prices and the foreign exchange rate, as well as the impact of two earlier rate cuts and the need to be aware of financial stability amid high household debt growth," Bank of Korea (BOK) Governor Lee Ju-yeol told reporters in a news conference.

The decision, which marks the second straight rate freeze, came after the seven-member policy board voted on a quarter percentage rate cut in August and October. Both the November and December decisions were unanimous.

While the rate cut was aimed at boosting recovery momentum in Asia's fourth-largest economy, critics have charged that it has failed to give the much-needed push and instead just further stoked the country's heavy household debt.

Household loans extended by financial institutions expanded by a monthly record of 7.8 trillion won (US$7.1 billion) in October, and household debt broke the 1,000 trillion won mark during the third quarter, according to central bank data.

Lee attributed the disappointing policy impact to "deeply-rooted fundamental factors," stressing they should be dealt with first in order for the economy to break free from the current low-growth trend.

Regarding household debt, Lee said the central bank and financial regulators are looking into the problem in a "serious" manner and said efforts from both sides are needed to cope with the issue.

The BOK chief also raised concerns about the impact of a weakening yen on local exporters. A weak yen is seen as a threat to Korean manufacturers that compete with Japanese players in the global market.

He noted that while the recent foreign exchange movement that has weakened the won boosts the price competitiveness of most exporters, a further weakening of the yen may hurt certain industries that compete with Japanese firms.

The BOK chief said the central bank is expected to lower both its growth and inflation outlook for next year in line with a fall in global oil prices and slowing growth in China and the eurozone.

In its latest forecast made in October, the central bank trimmed its 2015 growth outlook to 3.9 percent from 4 percent. It also lowered its inflation outlook to 2.4 percent from 2.7 percent. 

The next forecast is scheduled for January.

The latest policy decision is in line with a poll conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency. All

18 analysts predicted the BOK to hold the rate in December, while nearly half said a rate cut is likely in the first quarter. (Yonhap)