BOK freezes key rate for 2nd month in Dec.

South Korea‘s central bank froze the key interest rate for the second straight month on Thursday, opting to preserve policy room in the face of global economic uncertainty and the presidential election slated for next week.

Bank of Korea (BOK) Gov. Kim Choong-soo and his six fellow policymakers left the benchmark 7-day repo rate unchanged at 2.75 percent for December. The central bank cut the rate in July and October.

The decision was widely anticipated as 15 out of 16 analysts forecast the rate freeze in a survey by Yonhap Infomax, the financial news arm of Yonhap News Agency.

Analysts said that despite lingering economic uncertainty, concerns about a sharp deterioration of the economy have been somewhat eased, preventing the BOK policymakers from cutting the rate this month.

They also said that North Korea’s rocket launch was not a big enough factor to change the monetary policy and the BOK opted to freeze the rate in order not to give unnecessary implications ahead of the presidential election slated for Dec. 19.

“Pyongyang‘s rocket launch was not seen as a critical factor in affecting the rate policy,” said Lee Sung-kwon, a senior economist at Shinhan Investment Corp.

“The Korean economy moves sideways, but economic activities do not seem to face a sharp deterioration as exports show some improvement.”

North Korea fired off what it claimed was a rocket carrying a satellite on Wednesday, defying international pressure that called for stopping the provocative act. The financial markets were mostly unfazed by the North’s move as the local currency and the stock market edged up on the day of the launch.

Korea‘s exports grew on-year in November, but external economic uncertainty such as the U.S. fiscal cliff is clouding over the global economy. The Federal Reserve announced on Wednesday its pledge to expand a bond-buying program to prop up the economy.

Asia’s fourth-largest economy grew a mere 0.1 percent on-quarter in the third quarter, indicating that Korea‘s economy may have bottomed out in the July-September period, and that the recovery will only be marginal, analysts say.

Consumer prices grew 1.6 percent on-year in November, indicating that price pressures are easing amid the economic slowdown.

Analysts are quite divided over the BOK’s next move, but most experts said that the central bank is likely to lower the borrowing costs in the first half of next year in an effort to stimulate the growth.

The BOK said last week that the Korean economy may miss the BOK‘s 2012 growth estimate of 2.4 percent, prompting market players to bet on an additional rate cut down the road.

“An outlook for a rate cut is valid as exports are recovering only at a marginal pace and domestic demand remains subdued,” said Hong Jung-hye, a fixed-income analyst at Shinyoung Securities Co.

But some claimed that the BOK is likely to freeze the key rate throughout 2013 as an expected pick-up in growth and inflation for next year would make it difficult for the BOK to ease the borrowing costs.

“The BOK may maintain a neutral stance next year as a better growth forecast would deter the central bank from cutting the rate,” said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities Co. (Yonhap News)