The Bank of Korea held its record-low key interest rate steady in the face of rising global economic uncertainties over the monetary policy of the U.S. Federal Reserve and financial instability in China.

The BOK’s Monetary Policy Board said Friday that it decided to freeze its benchmark policy rate at 1.5 percent.

The central bank kept the base rate unchanged for the third straight month after its surprise cut of 0.25 basis points in June to boost consumption hit by the local outbreak of Middle East respiratory syndrome.

“We decided to keep the key rate at the current level given the gradual recovery in domestic demand, heightened uncertainty in the global financial market stemming from China and the United States and sustained growth in household debt,” BOK Gov. Lee Ju-yeol said in a press conference.

Appetite for safer assets has increasingly grown over the past month as the Chinese stock market stutters and the U.S. Federal Reserve readies for its first rate hike in nearly a decade, spurring fears of a massive foreign capital outflow here.

Signs of slowing growth and financial instability in China, meanwhile, has added to concerns that exports will further slump.

China is the country’s biggest trading partner.

Regarding the much-expected U.S. rate hike, Lee projected the increase to take place this year in a limited scope.

“The shock from the U.S. rate hike is expected to be limited and differentiated in South Korea,” he said, citing the Fed’s stance to raise the rates in a gradual manner and South Korea’s sturdy economic fundamentals.

The BOK’s monetary policy board, meanwhile, noted in their statement that while economic growth is mostly seen as on track, overall uncertainties surrounding its course have escalated.

“The board forecasts that the domestic economy will show a trend of recovery going forward, but, in light of external economic conditions, judges the uncertainties surrounding the growth path to have increased,” it said.

On the upside, the policy committee said consumption and investments are continuing to improve, but added that exports remain sluggish and “the improvement in economic agents’ sentiments has been inadequate.”

In August, exports saw their biggest fall in six years ― their eighth consecutive monthly drop ― hit by weak global demand and falling prices.

In July, the bank cut its 2015 economic growth forecast for the third time this year to 2.8 percent, citing sluggish exports and weak domestic consumption. 


By Kim Yon-se and news reports
(kys@heraldcorp.com)