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2nd LD Writethru: S.Korea freezes interest rates at record low on recovery signs

Xinhua, November 12, 2015 Adjust font size:

Bank of Korea (BOK), South Korea's central bank, froze interest rates at a record low on Thursday, keeping a wait-and-see stance for five months on signs of economic recovery.

BOK Governor Lee Ju-Yeol and six other policy board members decided to keep the benchmark 7-day repurchase rate on hold at 1.5 percent, refraining from altering the rate since July.

The central bank cut its policy rate by 25 basis points in August and October last year each, before lowering it by a quarter percentage point further in March and June this year.

The November rate-freeze decision was in line with market consensus. According to a Korea Financial Investment Association survey of 111 fixed-income experts, 96.4 percent of respondents predicted the rate on hold.

The widely expected rate freeze came as the economy showed signs of recovery from the Middle East Respiratory Syndrome (MERS) outbreak that peaked in June and withered private consumption.

The country's real GDP expanded 1.2 percent in the third quarter from the previous quarter, marking the highest increase since the second quarter of 2010. It topped the BOK's earlier forecast of 1.1 percent.

Private consumption, which was hit hardest by the MERS outbreak, recovered by growing 1.1 percent in the third quarter, a turnaround from a 0.2 percent decline in the second quarter.

The finance ministry said in its monthly report that recovery in private expenditure resulted in a rise in production and investment, citing the brisk industrial activity in September.

Production in all industries increased 2.4 percent in September from a month earlier, marking the fastest monthly growth since March 2011.

As the ministry and the central bank pointed out, signs of consumption recovery were shown in recent indicators.

Credit card usage jumped 13.1 percent in October from a year earlier, and passenger car sales in the local market surged 22.7 percent during the month. Department store sales soared 17.4 percent last month, with gasoline and diesel sales rising 9.2 percent.

Some of market watchers still predicted a further rate cut by the BOK, citing faltering exports, a major engine of the export-driven economy.

Exports, which account for about half of the economy, kept a downward trend for the first 10 months of this year. The exports plunged 15.8 percent in October from a year earlier, the fastest monthly slide in more than six years. Enditem