South Korea’s central bank kept the benchmark interest rate steady at a record-low level on Thursday for the 16th straight month, its longest-ever inaction amid stubbornly sluggish domestic demand and escalated geopolitical risks, but raised its growth outlook for this year to 3.0 percent from previous 2.8 percent.

The Bank of Korea has not made any changes to the policy rate since it last cut it by 25 basis points to 1.25 percent in June last year.

“As I said a few months ago, conditions are improving for us to tighten the scope of monetary easing,” BOK Governor Lee Ju-yeol told a press conference after the monetary policy meeting.

In June, Lee Ju-yeol indicated the BOK is ready to raise interest rates in line with the movements in the United States. But lethargic domestic demand and complicated trade conditions due to protectionist and retaliatory actions from the world’s two largest markets have contained any shift in monetary policy.

The economy has been moving at a snail’s pace despite record exports in semiconductors. Moreover, regional tensions from a series of North Korean missile and nuclear tests added to market uncertainties.

Still, the BOK turned buoyant about this year’s growth led largely by an unprecedented boom in electronic components. It raised its outlook for this year’s annualized gross domestic product (GDP) growth to 3.0 percent from 2.8 percent, its third upgrade so far.

The BOK has been warning that it cannot hold the benchmark rate at the current level for long in fear of foreign capital flight after U.S. interest rates become higher than Korean yields when the Federal Reserve raises its rates in December as largely expected.

The BOK monetary meeting was mostly ignored by the markets as inaction was expected.

As of 1:10 p.m. the benchmark three-year government yield rose 0.9 basis points to 1.944 percent on Thursday. The composite stock price index fell 0.38 percent at 2,473.57. The won fell 0.31 percent to 1,133.40 against the U.S. dollar.

By Kim Gyu-sik and Kim Hyo-jin

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