Bank of Korea keeps interest rates at 2.75%

No rate cut as domestic demand still anemic.

BBVA notes in its Asia Daily Flash report that the Bank of Korea (BOK) left interest rates unchanged at 2.75% at its recent meeting, as expected, six days ahead of the Presidential Election on December 19th. The BOK has cut rates twice this year for a combined 50 bps, the last time in October.

"Looking forward, we expect the BOK to remain on hold in the coming months," said BBVA.

BBVA points out that in the BOK statement the central bank described the economy as still weak primarily due to sluggish domestic demand, and that the negative output gap is unlikely to close soon, while "inflation will remain low for the time being".

On the other hand, the BOK mentions the favorable trends in exports and employment. The BOK also cites the appreciation in the won –which has strengthened by more than 8% against the USD in 2012, the top performing currency in Asia– and ends the statement saying that they will "closely monitor external risk factors and the consequent changes in financial and economic conditions" in order to conduct monetary policy.

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