By Cynthia Kim and Joori Roh
SEOUL (Reuters) – South Korea’s central bank kept interest rates unchanged on Tuesday, taking a breather after its first rate hike in nearly three years in August, as a resurgence in COVID-19 cases also clouded the short-term outlook.
The Bank of Korea (BOK) held the benchmark interest rate unchanged at 0.75%, as expected by 29 of 31 analysts polled by Reuters.
The BOK is seeking to keep the economic recovery on track, while trying to contain a surge in private sector debt, a red-hot property market and above-target inflation.
Asia’s fourth largest economy grew a revised 6.0% in the second quarter from a COVID-induced slump a year ago, the fastest annual expansion in a decade thanks to robust exports of chips and petrochemical products.
But a recent spike in daily COVID-19 cases, which reached over 3,000 on some days, has clouded the outlook for the months ahead.
Most analysts in the Reuters poll expected the BOK to hike rates in November and then increase them by a further 25 bps, taking the rate to 1.25% by the end of 2022.
Annual consumer inflation reached 2.5% in September, staying above the central bank’s 2% target for a sixth straight month.
“The BoK has made clear that its main priority is controlling financial risks amid surging house prices and household debt,” said Alex Holmes, an economist at Capital Economics.
All eyes are now on Governor Lee Ju-yeol’s news conference at 0220 GMT, where the bank is “likely to give strong signals that it intends to hike in November. More hikes are likely next year, too,” Holmes said.
The BOK in August became the first major Asian central bank to start raising borrowing costs since the COVID-19 pandemic started, putting it ahead of the curve as central banks around the world seek to dial back emergency stimulus.
The U.S. Federal Reserve signalled it will start trimming its bond-buying as soon as November and the Bank of England said it may raise interest rates before the end of this year.
The BOK’s rate meeting on Tuesday was the first attended by new board member Park Ki-young, who joined the seven-member board last week.
(Additional reporting by Choonsik Yoo, Jihoon Lee; Editing by Ana Nicolaci da Costa)
