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UPDATE 1-S.Korea bonds, stocks set for 3rd month of inflows; policy to stay
March 30, 2017 / 3:35 AM / 8 months ago

UPDATE 1-S.Korea bonds, stocks set for 3rd month of inflows; policy to stay

* Bond, stock inflows to continue for 3rd straight month in March

* BOK chief says current rates accommodative enough (Adds governor comments)

By Christine Kim

SEOUL, March 30 (Reuters) - South Korea’s central bank said on Thursday the country’s stocks and bonds are set to see net inflows for a third straight month, quelling concerns over a possible selloff in the wake of the U.S. Federal Reserve rate hike earlier this month.

As of March 24, foreigners had bought a net 3.4 trillion won ($3.05 billion) worth of South Korean shares while they boosted their holdings of bonds by 1.1 trillion won, the Bank of Korea (BOK) said.

“Rate hikes by the U.S. Federal Reserve have the potential to lend hardship to our economy, but if they are carried out gradually the impact is not expected to be large,” the BOK said in a report to parliament. But if the Fed’s actions were to cause financial jitters in other emerging market economies, risks could rise and add to outflow pressure, the BOK said.

The central bank report reiterated its view that South Korea’s economy would grow in the mid-2 percent range this year, but added there were many uncertainties.

Inflation would be around 2 percent, the bank said, roughly in line with its target.

Noting sluggish economic growth and mild inflationary pressure, the BOK said it would maintain its accommodative monetary policy stance.

When asked by a lawmaker if the central bank is considering quantitative easing, Governor Lee Ju-yeol said the current situation does not warrant such a policy.

“Right now when we look at our financial situation, credit flows and lending, it’s all sufficient enough to boost the economy,” said Lee to lawmakers in parliament.

“Real interest rates are at accommodative levels and currently it is not time to consider quantitative easing like some advanced economies have done.”

The Bank of Kore has cut its policy rate to a record low of 1.25 percent over the past few years, but has kept it steady since mid-2016.

A majority of analysts see the bank standing pat until year end or longer before it starts tightening as household debt keeps accumulating at a swift pace while inflation has started to creep up.

The central bank’s next rate-setting meeting will be held on April 13. ($1 = 1,113.6700 won) (Reporting by Christine Kim; Additional reporting by Cynthia Kim; Editing by Eric Meijer)

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