Bank Of Korea Holds Rates Steady At 2%

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The Bank of Korea on Thursday voted to keep interest rates on hold for the 12th consecutive month, maintaining the record low of 2.00 percent - in line with expectations.

Most analysts expected the bank to maintain the status quo, although a few felt that the bank might put forth a 25 basis point hike - further signaling that the global economic slowdown is indeed over.

Following an unexpected spike in unemployment reported earlier this week, most analysts now expect the bank to hold off on raising rates until at least the third quarter of this year.

"Domestic economic activity has continued on a recovering trend, which is expected to be maintained," the bank said in a statement accompanying the decision. "Exports and domestic demand have steadily increased and production has advanced briskly. There still, however, remains uncertainty as to the economic growth path due to the risk of government debt crises in some European countries."

While there is some speculation that the board would like to raise rates soon, the Finance Ministry is adamant that the bank not remove stimulus too soon.

"Consumer price inflation has accelerated its rising pace," the bank said. "It is anticipated as likely to be stable, however, in reflection of recent international raw material price movements. The upward trend of real estate prices has been blunted."

The bank had trimmed rates by 50 basis points to 2 percent last February 12, marking the sixth rate cut in the previous four months.

Before raising rates in August 2008 to combat inflation, the board had left interest rates at 5.00 percent for 11 straight meetings.

"Looking ahead, the committee will maintain the accommodative policy stance for the time being in such a way as to help sustain the trend of recovery in economic activity," the bank said.

(Market News Provided by RTTNews)