A Unanimous Decision
The Monetary Policy Committee of the Bank of Korea froze the key rate at 1.75 percent on Feb. 28, citing uncertain external conditions and concerns over a domestic economic slowdown. Previously, the central bank raised the key rate by 0.25 percentage point to 1.75 percent in November 2018.
“These days, the United States and China are showing some progress in trade talks and the U.S. Fed is expected to adjust the pace of its monetary policy,” the central bank explained, adding, “The interest rate difference between South Korea and the United States is likely to be maintained at 0.75 percentage point, yet uncertainties still remain as they are.”
When it comes to the domestic economy of South Korea, facility and construction investments are undergoing adjustments and export growth is falling. The number of employees edged up by only 19,000 last month whereas the number of the unemployed hit a 19-year high of 1,224,000. During the period, the consumer prices rose 0.8 percent, slightly more than half of the central bank’s estimate released in January. The figure is likely to remain below 1 percent for the time being to hinder an increase in benchmark interest rate.
Under the circumstances, some experts are pointing out the need to lower the key rate for economic stimulation. However, the central bank ruled out the possibility on Feb. 28. The ongoing increase in household debts is another factor deterring a downward key rate adjustment.