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BOK makes surprise rate cut to lift growth
The Bank of Korea on Tuesday held the base rate steady at 2 percent despite a global wave of monetary easing as the BOK gauges the impact of previous rate cuts and ever-growing household debt that is feared to hurt the economy once rate hikes begin.
"While the economic recovery is weak and inflation stays at a low level, we decided to hold the base rate to see how downside and upside macroeconomic risks develop," BOK Gov. Lee Ju-yeol said in a news conference following the decision. The policy decision was unanimous, he said.
Lee acknowledged that sharp household debt growth was among the key factors that pushed the monetary policy committee to keep the policy rate unchanged for a fourth straight month.
With the key rate at a record-matching low, demand for household loans from banks have been trending higher since the BOK slashed the base rate by a quarter percentage point twice, in August and October, last year.
BOK data released on Monday showed that outstanding bank loans to households reached 562.3 trillion won (US$511.8 billion) in January, posting the first on-month gain for the month since the data compiling began in 2008.
In a separate statement, the policy board said it will continue to monitor external risk factors, such as falling oil prices and shifting monetary policies at major economies, as well as domestic factors, such as household debt.
The top central banker distanced himself from market anticipation that the BOK will join the wave of monetary easing, stressing that "the current monetary policy stance is not at all at a level that limits the real economy."
Lee, who called it "inappropriate" to use the term "currency war" for the recent monetary easing flurry, still said the central bank is closely watching the won's appreciation against the euro and the yen.
The rate freeze matched a poll by Yonhap Infomax, the financial news arm of Yonhap News Agency. All 17 analysts surveyed said the BOK was likely to hold the base rate this month.
The analysts, however, said further easing by central banks around the world and the tepid economic recovery at home are likely to press the BOK to lower the base rate as early as March.
Five out of 15 analysts who submitted their forecasts for end-March expected the BOK to cut the base rate next month. The case for a rate cut increases going forward, with 11 out of 16 analysts forecasting a rate cut by end-June. (Yonhap)
