Bank of Korea keeps key rate steady at 1.25%

한국은행 기준금리 연 1.25%로 동결
The Bank of Korea has frozen the key interest rate for April,...keeping it unchanged since June last year.
Analysts say the central bank is likely taking a wait-and-see approach to gauge the economy amid a slew of uncertainties at home and abroad.
Kim Min-ji reports.

In a widely expected decision,... the Bank of Korea has kept its key rate steady for yet another month.
In its monetary policy meeting on Thursday,... the central bank held the rate at a record low of one-point-two-five percent,... unchanged since June last year.

But the Bank of Korea has found itself in a sticky situation -- neither being able to opt for a hike or a cut.
For starters,... the country faces a sky-high household debt mountain,... of over one-point-three trillion U.S. dollars,... so the central bank is not in a position to lower rates as it could spur further borrowing.
On the other hand,... uncertainties from China's apparent economic retaliation over the deployment of a U.S. missile defense system and increased protectionist sentiment from the U.S. could weigh on the Korean economy going forward,... making it difficult to accommodate a rate hike.
With that, the central bank faces another dilemma as it narrows the gap between Korea and the U.S.,... after the Federal Reserve raised its key rate by a 25 basis points to a range of zero-point-seven-five to one percent last month.
Most analysts believe Korea's central bank will likely stand pat throughout the year,... but things may change in 2018.

"The U.S. may raise rates two or three more times this year,... but the BOK is in an awkward position because of Korea's household debt and slowing domestic consumption. The central bank may have to raise rates next year,... if the U.S. overtakes Korea,... as it might trigger a capital outflow."

But, the Bank of Korea has emphasized that while movements in the U.S. are important factors,... it will not mechanically raise rates, just because the Fed is doing so.
For now,... it says it will maintain its current stance of monetary easing to support growth,... as inflationary pressures are not that pronounced.
Kim Min-ji, Arirang News.

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