BOK maintains key rate at 1.25% in August

South Korea’s central bank on Thursday froze the key interest rate for August, keeping the nation’s benchmark rate unchanged for 14 months straight since June last year.

The monetary policy board of the Bank of Korea voted in its monthly meeting to hold the key rate steady at 1.25 percent for the intermeeting period, officials said.

“The board shall operate the monetary policy focused on financial stability so that the (current) growth recovery may continue and the inflation rate may stabilize within the target range,” the BOK said in a statement.

“As the inflationary pressures on the demand side are not expected to be high although the domestic economy is expected to show solid growth, the Board will maintain its stance of monetary policy accommodation.”
 

Of the core reasons which led the monetary decision-making body to keep the interest rate at its all-time low level was the persisting geopolitical risks centered upon North Korea’s recent missile launches.

“The current circumstances include both favorable and unfavorable factors for our economy,” said BOK Gov, Lee Ju-yeol in a press briefing.

“It is especially difficult to predict the geopolitical tension, which is the leading risk factor for the second half of the year.”

The central bank chief’s remark was taken as a message that, despite the green light for South Korea’s economy in general, the military tension from the North is likely to hold off the key interest rate rebound.

On Tuesday, North Korea fired an intermediate-range ballistic missile which flew over Japan, rekindling conflicts between North Korean leader Kim Jong-un and US President Donald Trump.

Such growing political tension further pushed the central bank to stick to the currently low interest rate, prioritizing financial stability and predictability.

In June, Gov. Lee had said that the central bank may take a monetary tightening approach, should the nation’s economy show signs of robust recovery, hinting that a rake hike may be an option.

But the government’s reinforced measures on real estate transactions -- the so-called Aug. 2 announcement -- considerably dampened the calls for a rate hike.

“(The real estate policies) did reduce the urgent need for monetary tightening, as they slowed the household debt uptrend and thus reduced financial risk factors,” Lee said.

By Bae Hyun-jung (tellme@heraldcorp.com)