Bank Of Korea Keeps Interest Rate Unchanged At 2.75%

The Bank of Korea (BoK) Thursday announced its decision to keep the policy rate at 2.75 percent, withstanding the pressure from the market participants for additional stimulus measures to give a boost to the country's weakening economy.

The central bank has noted that the growth in the U.S. has lost momentum and that the euro zone economy is contracting, with weaker exports to the major economies in turn bringing a slower growth in the emerging Asian economy this year. At the same time, the BoK is expecting the economic slowdown to ease and the country’s economy to improve moderately.

This decision comes after the revised data released by the BoK last week showed that South Korea's economic growth slowed to 0.1 percent in the third quarter of this year compared to that in the previous quarter, weighed down by the faltering global economy and the intensifying debt crisis in the euro zone.

The preliminary reading in October showed that South Korea's gross domestic product, which measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy, was up 0.2 percent in the third quarter of this year compared to that in the second quarter. The economy expanded 0.3 percent in the second quarter while it rose 0.9 percent in the first quarter.

South Korea’s manufacturing activity continued to contract in November, according to the HSBC Purchasing Managers’ Index (PMI) released earlier this month. The reading of the PMI, a measure of the nationwide manufacturing activity, rose to 48.2 in November compared to 47.4 in October.

Meanwhile, South Korea’s unemployment rate in November remained unchanged from that in October but grew at a slightly slower pace than expected. According to the data released Wednesday by the Korea National Statistical Office, the country’s unemployment rate, which measures the percentage of the total work force that is unemployed and actively seeking employment, rose 3 percent in November at the same rate as in October.

In October, the BoK cut the policy rate by 25 basis points to 2.75 percent. Market players sense that the monetary policy should be loosened again sooner rather than later though the BoK has shown a preference for moving slowly. There should be room for further policy loosening since South Korea posted an inflation rate of 1.6 percent in November, which is below the central bank's 3.0 percent target and down from 2.1 percent in October.