The Bank of Korea (BOK) froze the key interest rate for the fifth straight month on September 10 amid downward risks from the US government shutdown and a potential US debt crisis.
BOK Governor Kim Choong-soo and six fellow policymakers kept the benchmark seven-day repo rate at 2.5 percent, as expected.
The decision resulted from external uncertainties surrounding the Korean economy and internal uncertainty of its sustained recovery.
The BOK said that the US government’s temporary shutdown would not give an immediate and significant impact on Korean economy, but it said it will keep close eyes on any development, since the shutdown could increase market volatility.
In addition, there are some signals of the Korean economy being on a recovery track, but its growth is not seen as sustainable, owing to continued weak domestic demand.
The BOK’s economic growth outlook for 2013 and 2014 stood at 2.8 percent and 4 percent, respectively, but economic analysts said that the 2014 growth estimate may be revised down.
Korea’s inflationary pressure remains limited, as consumer prices have been held below the central bank’s inflation target band of 2.5-3.5 percent. Domestic consumer inflation grew 0.8 percent in September from a year earlier, the lowest in 14 years, largely due to the fall in prices of farm products.
Experts in the industry said that the central bank will likely keep the benchmark rate for a considerable period of time.