Bank of Korea governor Lee Ju-yeol at a press conference in Seoul yesterday. Lee said South Korea’s current monetary policy was loose enough to support economic recovery, pointing to long-term bond yields and bank lending rates similar to or even lower than in the US.

Reuters/Seoul

South Korea’s central bank reassured investors yesterday that its future policy decisions would be based on economic data, but noted that another rate cut soon was unlikely because the economy was already recovering as expected.
The Bank of Korea’s seven-member policy committee unanimously held the base rate steady at a record-low 1.50%, the third straight month it unanimously kept the rate unchanged after cutting it in June.
Trader reaction to the decision and the Bank of Korea chief’s remarks was muted as global financial markets watch and wait for the outcome of the US Federal Reserve’s policy meeting on September 16 and 17.  “If and when growth does stray from our previous forecast of 2.8%, we will decide what to do about the situation then,” Bank of Korea governor Lee Ju-yeol told reporters.
Lee dismissed forecasts by some analysts that this year’s economic growth could be just above 2%. He said the Bank of Korea expects the US Federal Reserve to begin raising its interest rates before the end of the year, but did not specify a month.
Lee said South Korea’s current monetary policy was loose enough to support economic recovery, pointing to long-term bond yields and bank lending rates similar to or even lower than in the US.
A majority of analysts in a Reuters survey conducted before yesterday’s policy meeting predicted no further interest rate cut for some time, while about a third foresaw another cut soon to lift economic growth.
“The Bank of Korea will probably lower this year’s growth forecast to around 2.5% next month, but I don’t think it would cut the interest rate at the same time and for a while afterwards,” said Oh Suk-tae, an economist at Societe Generale in Seoul.  The central bank revises economic growth and inflation forecasts every three months. Its next update is scheduled for October 15, when the policy board meets again.
The Bank of Korea has trimmed the policy rate twice in 25-basis-point moves this year to maintain the economy’s recovery momentum, something that has proven difficult as weak global demand drains energy from the export-reliant economy.
A slowdown in China, South Korea’s biggest trade partner, has also troubled policymakers as China takes in about a quarter of South Korea’s exports.  China’s troubles have compounded South Korea’s tepid recovery from the chilling effects of the Middle East Respiratory Syndrome outbreak in May and June.