BOK holds key rate steady despite signs of slowing growth

The Bank of Korea (BOK) kept its policy rate frozen for another month Tuesday, despite continuing signs of a further slump that many say requires a rate cut to bolster growth.

The central bank's monetary policy board has stood pat on its key rate since sending it to a record low level of 1.5 percent in June 2015.

The board cited improvements in major economies, including the U.S. and China, that it said may help improve global conditions.

"The board forecasts that the global economy will maintain its recovery going forward, albeit at a moderate pace, centering around advanced economies such as the U.S., but judges that it will be affected by factors such as financial and economic conditions in emerging market countries, international oil price movements, and global financial market volatility," it said in a released statement.

BOK Gov. Lee Ju-yeol repeated his assertion that there currently exists very little of what can be achieved through a rate cut.

"I believe the key rate currently stands at a level that can support economic growth," he told a press briefing.

"The key rate certainly is at a supportive level. But as I have stressed, monetary policy alone can do only so much to support economic growth. The monetary policy board continues to firmly believe that economic growth requires financial policies, policy measures on structural reform and monetary policy," Lee added.

The top central banker earlier said an additional rate cut will likely create far more problems than benefits for the local economy, at least for now.

"There are always both positive and negative effects following a rate change, and considering the current situation where external uncertainties are so high, the positive effects of a rate change currently remain uncertain, while negative effects can certainly be expected," Lee said earlier.

Still, the decision comes amid a growing call for a cut in the key interest rate to improve growth in Asia's fourth-largest economy.

South Korea's exports have dropped every single month since the start of last year, plunging 13.1 percent on-year in the first three months of the year.

The BOK board acknowledged a continued downturn in exports, but insisted the local economy will continue expanding though at a moderate pace.

"Looking at the Korean economy, the trend of decline in exports has continued but domestic demand activities such as consumption, and the sentiments of economic agents appear to be improving somewhat," it said. "The board forecasts that the domestic economy will show a trend of modest improvement going forward, centering around domestic demand activities, but in view of external economic conditions judges the uncertainties surrounding the growth path to still be high."

In March, the country's consumer price inflation rose 1 percent from a month earlier, slowing from a 1.3-percent increase in the previous month and falling far short of the central bank's 2-percent target for the year.

Apparently facing a prolonged slump in domestic consumption, the BOK also slashed its growth outlook for the local economy to 2.8 percent from the previous 3 percent in its latest quarterly revision released Tuesday.

The BOK chief cited poorer-than-anticipated performance of the economy in the first quarter as a reason for the reduction.

"Low global oil prices and recent cuts in growth outlook for the global economy and trade were also key reasons," he said.

Meanwhile, Tuesday's decision by the monetary policy board was in line with an earlier poll by Yonhap Infomax, the financial news arm of Yonhap News Agency, in which 10 out of 17 experts surveyed predicted a rate freeze. (Yonhap)