Bank of Korea holds fire on interest rates

Bloomberg

The Bank of Korea left its key interest rate unchanged as an escalating US-China trade war and meager job growth threaten to sap momentum in Asia’s fourth-largest economy.
Eleven of 18 analysts surveyed by Bloomberg forecast the central bank to keep the seven-day repurchase rate at 1.5 percent. The rest predicted a hike to 1.75 percent.
When Governor Lee Ju-yeol convenes the next policy meeting in November, a year will have passed since the BOK raised the benchmark rate from a record low. Lee said then — and has reiterated as recently as this month — that policy accommodation needed to be reduced further.
Yet worries about spillover effects from the trade battle and emerging-market turmoil have been reasons for caution. So has a sharp slowdown in hiring at home. Lee hinted this month that the central bank may low-er its forecast for economic growth this year from the 2.9 percent predicted in July. The International Monetary Fund last week trimmed its 2018 forecast for South Korea to 2.8 percent from 3.0 percent, and cut its 2019 forecast to 2.6 percent from 2.9 percent.
“Since the BOK is widely expected to cut the growth outlook at the October meeting, raising rates at the same time doesn’t make much sense,” Stephen Lee, an economist at Meritz Securities Co. in Seoul, said before the decision.
“Considering the recent financial market turmoil and lingering external uncertainties, the BOK would rather wait and see for now.” Still, expectations for a rate increase have persisted as the BOK weighed competing pressures.