South Korea's central bank froze the key interest rate for the fifth straight month on Thursday amid downside risks from a partial U.S. government shutdown and a potential U.S. debt crisis.
Bank of Korea (BOK) Gov. Kim Choong-soo and his six fellow policymakers held steady the benchmark seven-day repo rate, dubbed the base rate, at 2.5 percent, as widely expected.
"The global economy is expected to sustain a moderate recovery, but the heightening uncertainties surrounding the U.S. government's budget bill and debt ceiling increase, as well as the likelihood of changes in global markets related to the tapering of U.S. quantitative easing, are acting as downside risks to growth," the BOK said in a statement.
The decision came as Asia's fourth-largest economy faces lingering external uncertainty while the local economy has not yet shown a sustained recovery.
The U.S. government's partial shutdown and Congressional deadlock over a deal to raise the U.S. debt limit are stoking some concerns over their negative impacts on the nascent recovery of the world's largest economy.
The Korean government said that the immediate impact of the U.S. government's temporary shutdown is not likely to be significant on the Korean market, but it said it will keep close tabs on any developments as a prolonged impasse could increase market volatility.
On the home front, the Korean economy is on a recovery track as it grew 1.1 percent on-quarter in the April-June period, the fastest growth in over two years. But its growth momentum is not seen as sustainable because domestic demand still remains weak, experts say.
The BOK will also unveil its revised growth forecast for 2013 and 2014 later in the day. The central bank's 2013 and 2014 growth estimates stood at 2.8 percent and 4 percent, respectively, but analysts said that the 2014 growth estimate may be revised down.
The International Monetary Fund on Tuesday downgraded its 2014 growth forecast for the Korean economy to 3.7 percent from an earlier estimate of 3.9 percent, citing the low global growth and persisting downside risks.
Korea's inflationary pressure remains subdued as consumer prices are running below the BOK's 2.5-3.5 percent inflation target band. Korea's consumer inflation grew 0.8 percent in September from a year earlier, the slowest pace in 14 years, due to falls in prices of farm products.
Experts in the poll said that the BOK will likely stand pat on the benchmark rate for a considerable period of time and the bank's next move would be a rate hike.
"The BOK may begin to consider changing its monetary policy direction in the first half of next year when the Federal Reserve ends its bond-buying stimulus program," said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities Co.
The Fed surprised the market in September by delaying tapering its US$85 billion monthly bond purchases. Fed Chairman Ben Bernanke said in June that the U.S. central bank could start dialing back its bond purchases later this year and possibly end them by mid-2014. (Yonhap News)
