While keeping the benchmark rate steady at a historic-low for the 16th straight month to record the longest-ever inaction on Thursday, the Bank of Korea readied the markets for a possible hike within the year by upping its outlook for this year’s annualized growth to 3.0 percent from previous 2.8 percent.

In a press conference after the rate meeting, BOK Governor Lee Ju-yeol said conditions are building up for the central bank to consider winding down its loose policy, reiterating what he had said in June that his bank would raise interest rates on clear signs of economic recovery.

He also disclosed that one committee member Lee Il-houng voted for a 25-basis point hike in the policy rate during the latest meeting.

The immediate disclosure of a dissenting vote was the hitherto clearest sign the BOK sent to the market on its inclination of lifting the benchmark rate from current record-low level of 1.25 percent.

The possibility of rates going up - negative for the bond market and positive for the stock bourse - affected the markets on Friday as the comments were interpreted as a hike as early as November.

The benchmark three-year government bond yield Friday closed 8.2 basis points up at 2.088 percent, and the five year bond 8.9 basis points up at 2.299 percent. The main Korean composite stock price index finished 0.67 percent up at 2,489.54.

The BOK also took a rare move of making its third upgrade in this year’s growth outlook with just a few months left in the calendar. From its estimate, the economy would be running at its potential rate of 3.0 percent for the first time in three years, which gives the central bank a leeway to lift the rates in line with movements in the United States.

Despite escalated geopolitical risks and still-sluggish domestic demand as well as high unemployment rate, Lee highlighted the positive signs in the economy such as active capital investment in the IT sector.

“The global economy is expected to grow further next year with signs of recovery momentum at both advanced and emerging economies,” said Jang Min, head of BOK’s research bureau. Recovery on the external front usually helps Korea’s economy as it is largely export-reliant.

Moreover, the inflation rate has been hovering at the bank’s target of 2.0 percent, although it has mostly been spurred by the supply-end from high food and oil prices.

The bank upgraded its inflation forecast for this year to 2.0 percent from 1.9 percent in July. It expects consumer prices to gain 1.8 percent in 2018.

Lee who ends his term in March next year has never attempted a hike since he took office in April, 2014. During his term, the key rate was lowered five times. The market expects the BOK to take a preemptive move to put the policy rate at 1.50 percent before the U.S. Federal Reserve raises the fed fund rates once more in December to a range of 1.25 percent and 1.50 percent as widely expected.

By Kim Gyu-sik and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]