| Bank of Korea Governor Lee Ju-yeol presides the monetary policy board meeting at the bank in Jung-gu, Seoul, Thursday. Yonhap |
The South Korean central bank on Thursday held its policy rate steady for January amid rising uncertainties at home and abroad.
In the first monetary policy board meeting of the year, the Bank of Korea (BOK) voted to freeze the base rate at 1.75 percent, following a quarter percentage point hike made in November.
The BOK decided to take a wait-and-see stance from the beginning of the year as a slowdown in the world economy and the on-going U.S.-China trade dispute weighed heavily on Asia's fourth-largest economy.
The central bank said the economy will slow down slightly in 2019 from its earlier forecast of 2.7 percent.
"The board expects domestic economic growth to fall slightly short of the path projected in October but sustain a rate that does not diverge significantly from its potential level thanks to increased government expenditures for example," the BOK said in a release. "The board will maintain its accommodative monetary policy stance."
Clear signs of an economic slowdown and a dimming outlook for the global economy caused the central bank to be more cautious.
The South Korean economy expanded 2.7 percent last year, slowing down from 3.1 percent in 2017. The 2018 growth rate met the BOK's earlier forecast but was the lowest since 2012, when the growth rate dropped to 2.3 percent.
In the fourth quarter, the economy grew a better-than-expected 1 percent on the back of robust government spending, but exports, the key economic driver of Asia's fourth-largest economy, declined for the first time in a year, falling 2.2 percent.
Facility investment contracted 4.4 percent on-year in the October-December period, while construction investment plunged 6.7 percent.
Moreover, lingering uncertainties over the trade row between the United States and China dragged down the recovery momentum of the trade-reliant economy. The world's two largest economies are South Korea's No. 1 and No. 2 trade partners.
The International Monetary Fund (IMF) recently cut its global economic forecast by 0.2 percentage point to 3.5 percent, while the Chinese economy rose by a 28-year low of 6.6 percent last year.
Fast falling crude oil prices and consequently lower-than-predicted inflation also made the BOK refrain from raising the policy rate in January.
"Looking ahead, it is forecast that consumer price inflation will fluctuate at the 1 percent range for some time and then steadily increase to the mid-1 percent level in the second half of this year," the central bank said.
Earlier, it expected consumer prices will be in the mid- to upper-1 percent range throughout 2019.
BOK Gov. Lee Ju-yeol said in his new year message that the BOK will continue its accommodative mode in coming months in the face of low inflationary pressure and slowing economic growth.
In November last year, the central bank hiked the rate by a quarter percentage point, saying that it was time to address the financial imbalance caused by a decade of low interest rates.
South Korea's household credit surpassed 1,500 trillion won (US$1.33 trillion) as of the end of September. (Yonhap)