Seoul, Nov 27 South Korea's central bank kept its benchmark interest rate unchanged on Thursday to safeguard financial stability amid a weakened local currency and an unstable housing market.
In a widely expected decision, the Monetary Policy Board of the Bank of Korea (BOK) kept the key rate steady at 2.5 per cent at its rate-setting meeting in Seoul.
It marked the fourth straight on-hold decision, even as the central bank remains in an easing cycle. Since October last year, the BOK has cut the key rate by a cumulative 100 basis points from 3.5 per cent in an apparent move to support economic growth.
Local experts noted the BOK can afford to take a wait-and-see approach before delivering an additional rate cut and focus more on stabilising the foreign exchange market as the economy remains on a recovery path.
The central bank presented an upbeat outlook on the day, raising this year's economic growth forecast by 0.1 percentage point to 1 percent and upgrading its projection for next year to 1.8 per cent from 1.6 per cent.
"Along with inflation having risen somewhat, the economy continues to improve, driven by consumption and exports, while uncertainty in the growth outlook continues, and risks to financial stability also remain. The Board, therefore, judged that it is appropriate to maintain the current level of the base rate and to assess domestic and external policy conditions," the BOK said in a released statement.
The won's sharp slide has been a primary concern for policymakers as a rate cut may trigger capital outflows, which in turn may further weaken the currency.
The local currency has remained well below the psychologically crucial 1,450-won level per dollar in recent weeks due mainly to heavy equity selling by offshore investors amid valuation concerns, as well as increased U.S. stock investment by local investors.
On Monday, the won closed at 1,477.1 against the greenback, marking its weakest level since April 9, when it ended at 1,484.1 won. The April level was the lowest since March 12, 2009, when the currency finished at 1,496.5 won per dollar due to the global financial crisis.
In response, the finance ministry, the BOK, the National Pension Service (NPS) and the welfare ministry that oversees the pension fund launched a four-way consultation body, holding their inaugural meeting Monday to discuss ways to balance the NPS' investment returns with stability in the foreign exchange market.
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