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S.Korea freezes benchmark interest rate at 1.5 pct for 11 months
Last Updated: 2018-10-18 17:06 | Xinhua
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South Korea's central bank on Thursday froze its benchmark interest rate for 11 months as growth outlook dimmed further.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other monetary policy board members decided to keep its target rate on hold at 1.50 percent.

The BOK refrained from altering the rate since the bank raised it to the current level in November last year from an all-time low of 1.25 percent.

It was in line with market expectations. According to a Korea Financial Investment Association (KFIA) survey of 100 fixed-income experts, 65 percent predicted a rate freeze.

The rate freeze came as the BOK lowered its growth forecast for the South Korean economy in 2018 to 2.7 percent from 2.9 percent estimated three months earlier.

It was the lowest in six years. The country's real gross domestic product (GDP), adjusted for inflation, expanded 3.1 percent in 2017. The finance ministry set its growth outlook for this year at 2.9 percent.

Despite the dimmed growth outlook, the BOK was expected to hike its benchmark rate next month as two monetary policy board members claimed a rate increase.

The gap in benchmark rates between South Korea and the United States widened further as the U.S. Federal Reserve hiked its policy rate in September to a range of 2.00-2.25 percent.

Foreign funds could abruptly flow out of the South Korean financial market if the BOK was late to tighten its policy stance. The Fed was widely forecast to tighten its monetary policy stance further in December.

The BOK said in a statement that the country would maintain a growth trend being equivalent to a growth potential despite the dimmed growth outlook.

The central bank also cut its growth forecast for next year to 2.7 percent from 2.8 percent estimated three months earlier.

Facility investment was forecast to fall 0.3 percent in 2018. It was a downgrade from a 1.2 percent expansion in the BOK's previous estimate.

Outlook for construction investment this year was downgraded to a 2.3 percent reduction from a 0.5 percent fall.

Private consumption was expected to grow 2.7 percent in 2018. Export, which accounts for about half of the export-driven economy, was forecast to increase 3.5 percent this year.

Labor market conditions would be the worst since the 2008 global financial crisis erupted. Job creation in 2018 was forecast to rise 90,000, the lowest since 2009 when 87,000 jobs reduced.

Consumer price inflation was estimated at 1.6 percent this year, unchanged from the previous estimate.

Outlook for current account surplus in 2018 was set at 70 billion U.S. dollars, or about 4 percent of the GDP.

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