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UPDATE 1-Bank of Korea holds rates as it assesses housing market, recovery
August 31, 2017 / 1:32 AM / 3 months ago

UPDATE 1-Bank of Korea holds rates as it assesses housing market, recovery

(Adds analyst comment, detail)

* Base rate kept at 1.25 pct (Reuters poll 1.25 pct)

* Effect of govt housing market measures eyed

* Analysts say economy not yet strong enough for rate hike

By Dahee Kim and Choonsik Yoo

SEOUL, Aug 31 (Reuters) - South Korea’s central bank kept its key interest rate unchanged at a record low on Thursday, as expected, as it assesses the effects of government measures to cool the housing market and a recently introduced fiscal stimulus.

A Bank of Korea (BOK) media official announced the monetary policy committee’s decision to keep the base rate at 1.25 percent without elaborating. Governor Lee Ju-yeol is due to hold a news conference from 11:20 a.m. (0220 GMT).

All 19 analysts in a Reuters poll forecast the central bank would hold rates this week, but most see the bank tightening policy sometime next year.

“The housing market, inflation and domestic consumption are the key themes for consideration by the central bank, and I don’t expect a tightening soon if they stay that way,” said Kim Ji-man, fixed-income analyst at HMC Investment & Securities.

“But inflation could pick up over the next month or so, and this could give the central bank an excuse to begin talking about the possibility of tightening going forward.”

Markets largely ignored the widely expected decision as traders waited for the governor’s news conference.

Measures announced early this month will raise capital gains taxes on owners of multiple homes and impose fresh mortgage curbs to rein in speculators. They are the most stringent on record and demonstrate the government’s deep concerns over rampant household debt.

The central bank will also be watching closely for the effects of an 11 trillion won ($9.79 billion) supplementary budget that was approved by parliament in late July. The budget will mainly focus on creating social service jobs.

The BOK has kept its policy rate unchanged since June 2016 and is widely expected to hike rates sometime next year as the economy improves.

There are, however, lingering doubts that the recovery is rock-solid, and policymakers have expressed concerns that gains may be too narrowly focused in some sectors and not as broadly based as they would like. ($1 = 1,123.5500 won) (Reporting by Dahee Kim and Choonsik Yoo; Additional reporting by Christine Kim; Editing by Eric Meijer)

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