The Bank of Korea left its key rate unchanged, supporting a rebound in growth as Kim Choong Soo gets ready to pass the reins to a new governor who will face risks from record household debt to U.S. monetary tapering.
Kim and his board held the seven-day repurchase rate at 2.5 percent for a tenth straight month, the central bank said in a statement in Seoul today, in line with forecasts of all 18 economists surveyed by Bloomberg News.
The central bank forecasts growth in Asia’s fourth-biggest economy will pick up to the fastest pace since 2010 this year, boosting inflation into its target range. Former senior deputy governor Lee Ju Yeol, who is set to succeed Kim in April, will face the challenge of supporting President Park Geun Hye’s bid to foster faster expansion while containing household debt that poses risks to the financial system.
“The next move will be a hike, although the new governor will be under pressure to wait until there is a clear sign that economic growth is driving inflation much higher,” Yoon Yeo Sam, a Seoul-based fixed-income analyst at Daewoo Securities Co., said before the decision.
South Korea’s economy will grow 3.8 percent this year and 4 percent next year, the BOK forecast in January. Inflation will accelerate to 2.8 percent in the second half of 2014, back to the central bank’s target range of 2.5 percent to 3.5 percent after hovering at around 1 percent for more than a year.
Lee, who will face the first vetting by parliament of a governor nominee in the BOK’s history, will face pressure to avoid tightening monetary policy too quickly. Hyun Jung Taik, vice chairman of President Park’s National Economic Advisory Council, last month cautioned in an interview against lifting rates now.
Home loans and credit extended to households rose to 1,021.3 trillion won ($956.5 billion) at the end of December.
Finance Minister Hyun Oh Seok said last month in an interview that the government was planning extra measures to tackle the debt.
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