Bank of Korea Keep Rates Amid Various Economic Factors

The central bank of South Korea kept their interest rates unchanged on Thursday as Governor Lee Ju-yeol is being careful as they were exposed with high household debt, weak inflation and intense trade relations between the United States and China.

The Bank of Korea monetary policy committee maintained the rates at 1.50 percent which still follows the forecasts of 18 analysts in a survey by Reuters. The central bank increased their reference rates of 25 basis points to 1.5 percent in November 2017, with the first hike since June 2011.

During the first news conference since his second term began this month, Lee did not advice on the course of monetary policies but did mention concerns on weak inflation and household debt of South Korea.

The Korean won has lost by 0.44 percent and dropped to 1,071 won (at 4.50 GMT) against the dollar following the news conference of BOK’s governor.

An all-out war is less likely to happen with the present trade war between China and the U.S. due to variable political interests that occur during negotiations. However, concerns about global trade war still affect the growth outlook while policymakers are anxious if the export growth for 2017 would abate.

An economist at Daishin Securities, Kong Dong-Rak, said, “As South Korea is more sensitive to changes in global demand than others, it’s a big worry for Korea’s growth outlook.”

The quarterly growth of South Korea’s economy cooled down by 0.2 percent which is the worst statistics since the last quarter of 2008 due to weakened car exports and construction that overpowered strong consumption and public spending.

High levels of household debt could also be blamed for the slow progress of the economy as there is around 190 percent of disposable income.

According to Lee, there is a bit of shift in the household debt growth for the month of March but this was mainly because of transitory factors that is still to be observed. Although, Lee expects the household debt growth to slow down.

The annual growth economic forecast reached the 3 percent cut of inflation from 1.7 pe