May 15, 2015 / 1:26 AM / 2 years ago

INSTANT VIEW 2-Bank of Korea leaves rate unchanged, as expected

SEOUL, May 15 (Reuters) - South Korea's central bank held interest rates steady for a second consecutive month on Friday, as expected, taking time out to asses the effect of previous rate cuts on the local economy and global growth trends.

The Bank of Korea's monetary policy committee held its base rate steady at 1.75 percent, a media official said without elaborating. Governor Lee Ju-yeol is due to hold a news conference from 11:20 a.m. (0220 GMT).

********************************************************

KEY POINTS:

- Full story

- Thirty out of 34 analysts polled in a Reuters survey said the central bank would keep its monetary policy rate unchanged this week.

- CHRONOLOGY

- Graphic link.reuters.com/hak95s

COMMENTARY:

KRYSTAL TAN, ECONOMIST, CAPITAL ECONOMICS

"We think the BoK's rate-cutting cycle has now come to an end."

"Admittedly, the economic recovery is still in an early stage, with exports, in particular, continuing to struggle. But we maintain our view that growth will pick up further in the coming months, as consumers start to spend their windfall from lower oil prices and earlier rate cuts filter through."

"Moreover, a key factor that will make the BoK wary about cutting rates aggressively is Korea's high household debt burden. Low interest rates have already helped to accelerate household credit growth in recent months."

LEE JUNG-BEOM, ANALYST, KOREA INVESTMENT & SECURITIES

"We see the base rate being frozen for the rest of the year. It's difficult to cut rates as mid-term indicators are improving and household debt is increasing, but raising the rates could shock the real estate market.

"Rising bond yields in the U.S. and beyond might not immediately lessen the likelihood of a rate cut."

"For the mid- to long-term, the rise of U.S. rates will somewhat restrict South Korea's monetary policy options."

"Past data shows that when credit is increasing, Korea has raised or frozen rates. So we see the rapid increase of household debt and the real estate market recovery makes a rate cut less likely.

"It would be difficult to stake our lives on whether the BOK will not cut rates in the second half of this year, but it's clear that financial indicators do not justify a monetary easing cycle."

LIM JI-WON, ECONOMIST, JPMORGAN CHASE & CO

"We are expecting real GDP growth will accelerate slightly in the current quarter, driven by domestic demand," in which case the Bank of Korea would leave rates on hold.

"If downside risks materialise from here, then they will probably take action one more time."

MARKET REACTION:

South Korean bond futures gave up previous gains and fell while the won and stocks were nearly unmoved from previous levels after the Bank of Korea's decision to keep rates steady.

June futures on three-year treasury bonds reversed gains to fall 0.05 points to 108.83 as of 0104 GMT, while the won edged down 0.2 percent against the dollar. The Korea Composite Stock Price Index was nearly flat, trading up 0.1 percent. (Reporting by Christine Kim and Joyce Lee; Editing by Tony Munroe)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below