The Bank of Korea (BOK) decided to keep the policy interest rate unchanged at historic-low of 1.25 percent in September, citing concerns for mounting household debts and a possible rate hike in the U.S. within this year.

The monetary policy board of the BOK voted unanimously to hold the base rate steady at 1.25 percent for the third straight month since June when it stunned the market by cutting the rate from 1.5 percent to a fresh low of 1.25 percent.

“The Korean economy is expected to continue to grow modestly despite rising uncertainties at home and abroad amid snowballing household debt and a possible increase in interest rate by the U.S. Federal Reserve,” said BOK Governor Lee Ju-yeol in a press conference following the monetary policy meeting.

He added that the upward pressure could be put on the base rate if the possible rate hike in the U.S. strengthens the dollar and causes capital flight. “The domestic interest rate should be kept at higher than the U.S., the key currency country,” he emphasized. He added that concerns of flight in capital have been eased thanks to the upgrade in Korean sovereign credit rating and steady demands for local bonds by foreign investors.

“Although exports are struggling to recover, domestic demand has been showing a moderate recovery.” he said.

There are risks undermining recovery, but the economy is moving largely within expectations, he said in a comment that could be interpreted that the central bank won’t take any further cut action amid concerns for industrial restructuring impact on the economy.

He predicted limited impact from the collapse of Hanjin Shippint on the nation’s economy and the financial market.

The financial markets took little notice of the comments from the Bank of Korea as they were largely affected by the news of North Korea’s fifth nuclear test earlier Friday.

The main Korean Composite Stock Price Index closed Friday at 2,037.87 points, down 25.86 points or 1.25 percent from the previous session. The dollar closed at 1,099 won, up 8 won or 0.73 percent from the previous day.

By Chung Ui-hyun

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