(Updated with quotes from BOK governor)
South Korea’s central bank is likely to hold off additional easing for the year and won`t move to tightening unless it is sure the economy is safely back on a recovery path, its chief said Wednesday.
“Given the macroeconomic trend, economic forecast and interest rate conditions, we are not at a stage to launch a full-scale quantitative easing,” Bank of Korea (BOK) Governor Lee Ju-yeol told reporters after the bank’s rate inaction.
The monetary policy board voted unanimously to hold the benchmark interest rate steady at a record low of 0.50 percent, choosing to stay pat for the third session in a row.
Lee played down the likelihood of a rate cut at this year’s last policy meeting in November and denied the bank would increase bond purchases beyond the preset level.
The central bank announced last month it would purchase around 5 trillion won ($4.2 billion) in government bonds to absorb the increased debt issued to finance four budget increases. It was the bank’s largest bond purchase program since 2011.
“We’re not deeply concerned about the potential imbalance of supply and demand in government bonds,” he said, adding that the bank could still "respond flexibly to market conditions."
“As central banks of major economies are expected to remain accommodative, Korea’s rates would stand relatively higher, creating a favorable environment for bond investment,” he said.
Lee said Korea’s gross domestic product growth this year would not stray far from the BOK’s August estimates of a 1.3 percent decline.
Further monetary action would hinge largely on the third-quarter GDP data, whose preliminary figures would be released on Oct. 27, he said.
But he added that any shift in monetary policy would depend on various other factors.
“We cannot determine next year’s action primarily on GDP as the growth would be against negative and weak figures of this year,” he said.
Lee’s comments slightly boosted the bond market. The yield on the three-year government bond fell 1 basis point to 0.913 percent. The five-year bond yield slipped 0.7 basis point to 1.204 percent and the 10-year yield 0.4 basis point to 1.523 percent.
Korea’s benchmark Kospi fell 0.94 percent Wednesday to close at 2,380.48. The Korean won fell 0.08 percent, or 0.90, against the U.S. dollar to 1,146.90.
By Kim Hyo-jin
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]