South Korea’s central bank on Thursday maintained the benchmark rate unchanged at 1.25 percent for the sixth straight month in December as it kept wait-and-see posture amid unprecedented policy bind with the U.S. counterpart decisively in tightening mode and conditions for the feeble economy worsening on top of political insecurity with an impeached president.

“External and domestic uncertainties have never been so high,” said Bank of Korea Governor Lee Ju-yeol in a news conference following the monetary policy meeting.

“But we don’t expect major capital flight at the current stage,” he said while adding that the central bank will keep monetary policy at “loose” posture while ensuring financial stability.

Higher interest returns on top of stronger U.S. dollar could persuade foreign capital to pack out of emerging markets including South Korea and migrate to safer U.S. assets. Korea, however, should be less worried about a liquidity crisis due to sudden exodus of foreign capital as the country sits on big foreign exchange reserves and maintains a solid surplus in its current account balance, Lee said.

“We will maintain the current loose monetary policy to help stabilize the economy” regardless of the rate actions from the United States, he said.

In line with expectations, the U.S Federal Reserve on Wednesday (local time) pushed up the short-term interest rates by a quarter of a percentage point to place the fed fund rate range in 0.50 percent to 0.75 percent. It hinted at three quarter hikes for coming months in 2017.

The Bank of Korea has more or less lost momentum to push the benchmark interest rate further down to prop up the economy saddled with consumer and business sentiment in worst levels since 2008 financial crisis and political insecurity following the impeachment of scandal-ridden President Park Geun-hye. The decision that requires constitutional court verdict has placed the government under responsibility of the prime minister who must cooperate with the opposition-majority legislative.

The three-year government bond yield gained 6.1 basis points to 1.705 to hover way above the policy rate while benchmark 10-year yield jumped 9.7 basis points to 2.228.

By Chung Ui-hyun

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