Key Rate Frozen
The Bank of Korea held a Monetary Policy Committee meeting on March 10 and maintained the key rate at 1.50% a year for the ninth consecutive month.
The financial market quickly responded to the decision. The three-year treasury bond rate increased by 0.03 percentage points from the previous day to 1.50% and the won-dollar exchange rate fell 12.7 won to 1,203.5 won per U.S. dollar.
Economic forecasts are not bright although the central bank froze the benchmark rate. In January this year, retail sales and capital investment decreased by 1.4% and 6.0% from a month ago to fall below zero, respectively. The indices for February are not much different. The sales of department stores and discount stores fell 0.1% and 5.4% in February, respectively.
Still, Bank of Korea governor Lee Ju-yeol mentioned that there are some positive signs. “The international oil prices are predicted to show a dramatic recovery and U.S. economic indicators are sending positive signals as well,” he said, adding, “These positive external conditions will help out South Korean exporters and the domestic financial markets.”
Nevertheless, he was stubborn when it comes to the key interest rate. He reconfirmed that the current rate of 1.50% is relaxed enough and does not restrict the real economy. “With the international financial markets remaining unstable, the effect of a cut in base rate is likely to be limited at best,” he emphasized.