BOK keeps rates unchanged for sixth straight meeting

Bank of Korea Gov. Rhee Chang-yong at the Monetary Policy Board meeting held at the bank headquarters in central Seoul on Thursday. [BOK]

The Bank of Korea (BOK) kept the rate unchanged at 3.50 percent on Thursday for the sixth straight meeting.

It was a widely expected move amid uncertainties including the geopolitical tension in the Middle East and the inflationary pressure caused by the rise in global oil prices.

According to the Korea Financial Investment Association (Kofia), 90 percent of bond experts, including analysts, expected the BOK’s Monetary Policy Board to keep the rate steady. The remaining 10 percent projected a quarter percentage point increase in the policy rate.

A total of a hundred people from 52 institutions participated in the survey from Oct. 5 through Oct. 11.

The bond experts cited a rise in expectation for the Federal Reserve to ease monetary policy, according to Kofia. A summary of the Fed minutes for the September meeting showed that “some judged it likely that no further increases would be warranted.”

It also cited the reduced need to raise the policy rate amid a rise in the long-term treasury bond yield. The 30-year Treasury note yield rose to 4.204 percent on Wednesday, up from 3.818 percent a month earlier.

“A rise in market interest rates pulls up the borrowing rate, which ironically reduces the need for an additional policy rate hike,” according to Kim Ji-man, a senior analyst at Samsung Securities in a report on Tuesday.

Kim added the rise in household debt will make it difficult for the BOK’s Monetary Policy Board to lift the rate, citing BOK Gov. Rhee Chang-yong’s past remarks.

“I’m paying attention to household debt, but the market aggravates when loan regulations are strengthened at the time of rising interest rates,” Rhee told reporters during his trip to attend the meetings of Group of 20 finance ministers and central bank chiefs in Morocco earlier this month.

Financial regulators announced a set of measures last month to slow household debt growth, including tightening rules on mortgage lending with a 50-year maturity.

Household loans extended by banks grew 4.9 trillion won ($3.63 billion) in September to 1,079.8 trillion won.

Slowing inflation was another factor that affected the bond experts’ projection.

“External uncertainties exist, like volatility in global oil prices, but the slowing trend of the overall inflation is maintained,” Kofia added.

Consumer prices rose 3.7 percent in September from a year earlier, accelerating from a 3.4 percent on-month increase in August. It peaked at 6.3 percent in July last year.

But inflationary pressure remains due to the recent rise in subway fares in the greater Seoul area this month and potentially an additional increase in electricity fees.

BY JIN MIN-JI [jin.minji@joongang.co.kr]