BOK freezes interest rates for eighth straight meeting

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

The Bank of Korea (BOK) kept interest rates unchanged at 3.50 percent for the eighth straight meeting on Thursday.

It was a widely expected move amid mounting risks from the property sector and inflation that remains above 3 percent.

According to the Korea Financial Investment Association (Kofia), 98 percent of bond experts, including analysts, expected the BOK’s Monetary Policy Board to freeze the rate. The gauge was up from a 90 percent estimation ahead of the previous rate-setting meeting in November.

The remaining 2 percent projected a 25 basis points rate cut.

A total of 100 people from 53 institutions took part in the survey for six days through Jan. 4.

“The survey showed the Monetary Policy Board is expected to keep the current interest rate in January as the projection for early rate cuts weakened following the release of the FOMC (Federal Open Market Committee) December minutes and uncertainties in monetary policy expanded,” said Kofia in a statement.

It noted consumer prices growth in December was 3.2 percent, which remains higher than the target 2 percent, but added the growth is expected to gradually weaken as international oil prices stabilize.

“There’s a limit to the steps the Monetary Policy Board can take amid uncertainties in which stance the FOMC will take,” said Kim Ji-na, an analyst at Eugene Investment & Securities in a report Monday. “There is no reason for the board to preemptively cut rates amid the finalization of global inflation and rate increases, unless Korea’s economy is particularly slow [in recovering].”

Analysts expect the risks associated with real estate project financing (PF) loans to pull forward the time when the BOK starts cutting rates, which is generally expected to initiate from the second half of the year.

“Concerns for an economy slowdown derived by the real estate PF loans is a factor that can pull down the yield for treasury bonds and also pull forward the date the BOK starts slashing interest rates,” said Shin Earl, an analyst at Sangsangin Investment & Securities in a report on Tuesday.

Concerns related to PF loans escalated after Taeyoung Engineering & Construction, a mid-size Korean builder, applied for a debt restructuring program in late December due to a liquidity shortage over real estate PF loans.

The next FOMC meeting is scheduled to take place from Jan. 30.

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