Bank of Korea Keeps Key Rate at Record Low

Lee Seong-tae, governor of the Bank of Korea, bangs the gavel to preside over a meeting to decide a...

Lee Seong-tae, governor of the Bank of Korea, bangs the gavel to preside over a meeting to decide a benchmark call rate at its headquarters in Seoul, South Korea, Friday, Oct. 9, 2009. South Korea's central bank left its key interest rate at a record low Friday for an eighth straight month amid speculation that a hike could come as early as November. (AP Photo/Lee Jin-man)

(AP)

South Korea's central bank left its key interest rate at a record low Friday for an eighth straight month, largely dousing speculation a hike may come before the end of the year and sending stocks higher.

The Bank of Korea announced that its monetary policy committee decided to keep the benchmark seven-day repurchase rate at 2 percent at a monthly policy meeting. The decision was in line with the expectations.

The bank had slashed the rate six times since a year ago to help battle the effects of the global financial crisis. Declines in global consumer demand as the global recession unfolded hit demand for South Korean exports.

Asia's fourth-largest economy, however, has now fought back from its worst slowdown since the 1997-98 Asian financial crisis to record two straight quarters of growth on a rebound in exports and production.

The recovery, a rise in housing prices and comments by BOK Gov. Lee Seong-tae perceived as suggesting a rate increase had led to speculation a hike could come sooner rather than later, possibly as early as next month.

The bank's monetary policy committee, however, in a statement on the decision stuck to similar wording used last month, saying that it would keep in place its "accommodative policy stance for the time being." It cited lingering "uncertainty as to the economic growth path."

Central banks often signal coming rate hikes by first altering the language in their policy announcements so the statement's wording and less hawkish comments by Lee at a press conference Friday convinced analysts a November rate hike was unlikely.

"That possibility seems to be gone," said Lim Ji-won, economist at JP Morgan in Seoul. Instead, the BOK will wait until next year, she said, forecasting the central bank to raise its key rate by a full percentage point over the course of 2010.

A rate hike Tuesday by Australia's central bank had also fueled talk of a similar move in South Korea. The Reserve Bank of Australia raised its cash rate to 3.25 percent from a 49-year low of 3 percent after having slashed it a total of 4.25 percentage points to help deal with the crisis. That was the first hike by a major central bank since the financial crisis worsened last fall.