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(LEAD) BOK holds key rate steady despite signs of sluggish economy

All Headlines 11:09 March 10, 2016

(ATTN: UPDATES with reports of decision by BOK monetary policy board, additional information in paras 3-4, 10-11; ADDS photo)

SEOUL, March 10 (Yonhap) -- The Bank of Korea (BOK) left its key rate unchanged Thursday, again extending its wait-and-see mode despite signs of a slowing economy and exports.

In a widely expected decision, the central bank's monetary policy board kept the base rate frozen at a record low of 1.5 percent for March.

The board cited a growing volatility in the global financial market as one of the reasons for its decision to keep the base rate frozen for the ninth consecutive month.

"The board forecasts that the global economy will maintain its recovery going forward, albeit at a moderate pace, centering around advanced economies such as the U.S., but judges that it will be affected by factors such as financial and economic conditions in China and other emerging market countries, international oil price movements and global financial market volatility," it said in a released statement.

The BOK has stood pat on the key interest rate since July after delivering four rate cuts in less than a year to help bolster growth in South Korea.

Thursday's decision is in line with an earlier poll by Yonhap Infomax, the financial news arm of Yonhap News Agency, in which 11 out of 19 economists surveyed forecast the central bank to keep its key rate frozen for March.

However, the decision comes amid growing signs of a slowdown in Asia's fourth-largest economy.

South Korea's exports have dropped for 14 consecutive months since the start of last year, plunging 12.2 percent on-year in February alone.

Domestic consumption, one of two main pillars of growth, has also been on the decline, with an index gauging the sentiment of consumers here dipping to an eight-month low last month.

"The trend of a decline in exports and the weakening recovery of domestic demand activities such as consumption are continuing, while the sentiments of economic agents have been sluggish," the BOK board noted.

While the economy continues to remain in the doldrums, the country's household debt has been growing "at a level exceeding that of recent years," it added.

Economists have pointed out growing household debt as a factor that may prevent an additional rate cut for at least some time.

The country's household credit, which represents total household borrowing, has reached a record high of 1,207 trillion won (US$993.4 billion) as of end-December.

In the Infomax poll, a whopping 15 out of 17 economists forecast the BOK to lower its key rate to at least 1.25 percent by June.

bdk@yna.co.kr
(END)

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