BOK stands pat as 4th wave of outbreaks ups uncertainties

South Korea's central bank on Thursday held its benchmark policy rate unchanged at a record low of 0.5 percent amid a recent spike in COVID-19 infections but strongly hinted it may conduct its first post-pandemic rate hike by the end of this year.

Bank of Korea (BOK) Gov. Lee Ju-yeol said the central bank will review whether a policy adjustment is needed at next month's rate-setting meeting, maintaining his hawkish stance on inflation and financial imbalances.

The BOK "could raise its key rate within this year" if infections with the delta variant ease and prospects of an economic recovery become clear, Lee told reporters.

The monetary policy board of the Bank of Korea (BOK) voted to leave the base rate steady at this year's fifth rate-setting meeting.

The BOK's decision came as the nation was battling against its worst-ever COVID-19 outbreaks, with daily new infections rising above 1,000 for more than a week.

Lee told reporters that the pace of an economic recovery is unlikely to be significantly undermined by the fourth wave of the pandemic because of vaccination efforts and an extra budget.

Lee said Thursday's rate freeze decision was not unanimous and a board member cast a dissenting vote insisting that the BOK must raise its key rate by 0.25 percentage point.

Despite the fourth wave, the Korean economy is expected to expand in line with the projection in May, Lee said.

This year's economic growth is projected to be around 4 percent, consistent with the forecast in May, he said.

"The Korean economy has continued its sound recovery. Exports and facilities investment have sustained their buoyancy and private consumption has shown improvement," the BOK said in a statement.

"Going forward, exports and investment will sustain their buoyancy, while private consumption is forecast to temporarily weaken affected by the coronavirus resurgence but then return to the path of recovery supported by the execution of a supplementary budget. GDP growth this year is projected to be around 4 percent, consistent with the forecast in May," it said.

Investors will closely watch Lee's press conference, which will provide details on whether there were any dissenters.

To bolster the pandemic-hit economy, the BOK slashed the key rate to the all-time low of 0.5 percent in May last year by delivering an emergency rate cut of half a percentage point.

Despite signs of a robust recovery in exports, weaker consumption has weighed on employment and increased pressure on policymakers.

So far this year, South Korea's economic recovery has shown signs of a recovery, helped by a strong rebound in exports.

Exports, which account for about half of the nation's gross domestic production, jumped 39.7 percent in June from a year earlier, extending their gains for an eighth consecutive month, as demand for chips and automobiles stayed strong amid the improving global economy.

Outbound shipments came to $54.8 billion last month, according to government data.

In the first 10 days of July, exports rose 14.1 percent on-year, customs data showed. (Yonhap)