South Korea’s central bank on Thursday put off raising interest rates amid deteriorating economic conditions that led a top economic adviser warning of an economy at the onset of a recession.
The Bank of Korea stayed pat by keeping the policy rate at 1.5 percent, last bumped up in November.
“There are various mixed factors. We still believe the economy can grow at its potential rate (of 3.0 percent),” said its governor Lee Ju-yeol after the policy meeting, brushing off concerns about stagflation - referring to a dangerous condition of stagnation, high unemployment, and inflation.
Many economists shot down the possibility of a hike in the first half and believe additional increase could stop at one regardless of faster raises in the U.S. interest rates.
The U.S Fed kept its policy interest target range unchanged at 1.5 percent-1.75 percent this month but reiterated it can bump up rates two to three more times.
Job additions against year-ago period stopped at around 100,000 throughout the first months of the year, sharply below the average 300,000 to 400,000 in past years. Factory operation rate is at the worst since the 2008 financial crisis while consumption stays stubbornly sluggish. Moreover, capital investment has slumped as exports lose steam.
Kim Kwang-doo, vice chairman of the National Economic Advisory Council, warned that the economy could be at the onset of a recession. Deputy prime minister for economy Kim Dong-yeon also suggested moderation in the minimum wage hike policy amid criticism that labor-friendly policies have worsened domestic demand.
On top of the worsening job data at home, rising oil prices and a spread of currency crisis from Argentina and Turkey raises more uncertainties on the external front, Lee said.
In Seoul trading on Thursday, benchmark three-year bond yield closed down 4.4 basis points at 2.191 percent and five-year bond yield down 3.3 basis points at 2.480 percent. The main Kospi index ended down 0.24 percent at 2,466.01, and the Korean currency finished at 1,079.6 won against the U.S. dollar, up 1.1 won from the previous session’s close.
By Kim In-oh and Cho Jeehyun
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