Bank of Korea holds interest rate in volatile market

It's at five-month low of 1.25%.

Bank of Korea (BOK) held its benchmark Base Rate at record low of 1.25% for the fifth consecutive month.

UOB Global Economics and Markets Research expects the central bank to remain on hold in the short-term while assessing the impact of global and domestic uncertainties, particularly changes to US Fed monetary policy trajectory, if any.

BOK governor Lee Ju Yeol said that the rate decision was unanimous. Lee said that the expectation of US rate hike will affect the exchange rate but may not necessarily affect BOK’s rate decision. The central bank has measures to stabilize the financial markets if needed.

Lee said that there would be negative impact on global trade and Korea’s exports should US president-elect Trump carry out his policy pledges including the withdrawal of TPP, re-negotiating the Korea-US FTA or imposing higher tariffs on US imports but highlighted that Trump’s pro-growth measures, including the proposed tax and infrastructure plans could have a positive spillover on Korean businesses.

In the monetary policy statement, the BOK said that recent changes in domestic and external conditions have further increased the uncertainties surrounding the domestic growth path. The central bank maintained its outlook on inflation which is forecast to rise gradually, driven mainly by weakening influence of the low oil prices.

There was also no change to its assessment of household lending which it said “has sustained a trend of substantial increase at a level exceeding that of recent years, led by mortgage loans.”

The BOK will continue to monitor the uncertainties in both domestic and global markets, as well as any changes to US Fed’s monetary policy and the domestic household debt development.