Central bank freezes policy rate at 1.5 pct for May: Yonhap

By Lim Chang-won Posted : May 24, 2018, 11:06 Updated : May 24, 2018, 11:06

[Bank of Korea]



SEOUL -- South Korea's central bank on Thursday held its key rate steady for May amid signs of an economic downturn and low inflation pressure.

In a widely expected move, the monetary policy board of the Bank of Korea (BOK) voted to keep the policy rate unchanged at 1.5 percent, extending its wait-and-see stance to six months. In November last year, South Korea's central bank adjusted up the key rate for the first time in more than six years, citing economic recovery.

The market broadly anticipated the rate freeze by the BOK at the May meeting as latest economic data showed that Asia's fourth-largest economy seems to be in a downside cycle. Recently, BOK Gov. Lee Ju-yeol said the South Korean economy faces strong headwinds in the coming months, saying, "It has become hard to be optimistic."

The country's job creation remains weak -- the number of new jobs in the backbone manufacturing sector declined amid restructuring in the labor intensive shipping and automaking industries. Earlier, the central bank lowered its estimates for job creation to 260,000 from a previous projection of 300,000.

At the same time, household debt is on a steady rise and reached a record 1,468 trillion won (US$1.36 trillion) in the first quarter of this year. Consumer price inflation has been hovering around 1.5 percent for months, far lower than the BOK's target of 2 percent.

Also, uncertainties are building around the world due to the possibility of a trade war between the United States and China. The world's biggest and second-biggest economies are South Korea's No. 1 and No. 2 trade partners. Seoul's exports fell 1.5 percent on-year in April, the first negative growth in 18 months due to a sharp drop in overseas sales of vessels.

Moreover, the strengthening of the local currency will likely undermine price competitiveness of South Korean goods in the global market. The Korean won averaged 1,067.76 won against the U.S. dollar in April, up from an average 1,071.89 won in March.
(Yonhap)
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