The Bank of Korea (BOK) decided to hold the benchmark interest rate unchanged at 1.25 percent for the fifth straight month in November, opting to save policy ammunitions for future uncertainties on the global front under the presidency of political novice Donald Trump.

The move was largely expected by the market as the Korean central bank is in a bind due to dangerous level of household debt that could tip over once the U.S. Federal Reserve start raising interest rates as early as December.

The monetary policy board of the BOK on Friday voted to keep the base rate at 1.25 percent unchanged from June when it had last cut to a historic low to prop up the economy.

The main Korean Composite Stock Price Index (Kospi) closed Friday at 1,984.43 points, down 0.91 percent from the previous session. The dollar rose 0.50 percent or 5.80 won to 1,164.80 won from the previous day.

The bank stayed pat on rates as the authorities around the world are closely watching whether and how much the U.S. president-elect will follow through his radical trade and economic platforms that have been decisively protective of local industries and jobs and hostile towards Asian and other trade powerhouses.

Trump’s economic platform calls for sharp hike in tariffs and other barriers by scrapping or renegotiating multilateral and bilateral free trade agreements, said BOK Governor Lee Ju-yeol in a press conference following the money policy meeting.

“It is unclear whether and how much these policies will be acted out, and the repercussions could be different depending on the scope and timing,” he said.

What is certain is that his polices would deliver negative effect on global and domestic economy.

“Because of the escalated uncertainties in external and domestic conditions, the outlook on growth also has become more unpredictable,” he said.

“We are ready to implement various measures under the contingency plan in case of market disruptions,” Lee said without elaborating.

He believed the U.S. Federal Reserve’s rate policy would be unaffected by the transition in power in Washington. “The market believes in the probability of a hike move in December, and the anticipation of two more hikes in 2017 remains intact,” he said.

Even without the stunning change in Washington leadership, the Korean economy is saddled with multiple whammies including the unprecedented stalemate in state management with the leadership hanging in limbo and scandal-ridden president pressured to step down.

Amid little signs of improvement in the economy, household debts continue to pile up to new record high levels despite a series of toughened regulations, leaving the central bank between a rock and a hard place at a time when the nation’s ailing economy needs some stimulus measures.

The fiscal policy should be more oriented to stimulate the economy, he said.

By Chung Ui-hyun

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