BOK freezes key rate for 7th straight month in Dec.

By Kim Soo-yeon

SEOUL, Dec. 12 (Yonhap) -- South Korea's central bank froze the key interest rate for the seventh consecutive month on Thursday as the local economy is showing signs of a moderate recovery amid tame inflation.

Bank of Korea (BOK) Gov. Kim Choong-soo and his six fellow policymakers held steady the benchmark seven-day repo rate, dubbed the base rate, at 2.5 percent, as widely anticipated.

The decision came as a set of data pointed to a moderate recovery of the Korean economy while the timing of the Federal Reserve's monetary stimulus tapering still remains uncertain.

The Korean economy grew 1.1 percent on-quarter in the third quarter, the same pace as in the second quarter, on improving domestic demand and a pickup in facility investment.

The country's industrial output grew 1.8 percent on-month in October, the fastest gain in 11 months, indicating that the economy might be picking up.

Korea's inflationary pressure remains subdued as consumer prices are running below the BOK's 2.5-3.5 percent inflation target band for the 18th straight month in November. The on-year growth of consumer inflation picked up to 0.9 percent in November from 0.7 percent in October.

The rate freeze also came amid high uncertainty over when the Fed would begin scaling back its bond-purchasing stimulus program. The Fed's policy meeting is slated for Dec. 17-18.

Analysts said that the BOK is likely to extend its current wait-and-see stance for a while but added that its next move may be a rate hike, though views are divided over the timing.

Gov. Kim said last month that the Korean economy is likely to recover to its potential growth late next year, but that does not necessarily mean that a rate hike will follow in the second half of 2014.

He said Korea's output gap remains in negative territory for now, but it will disappear sometime in the second half of next year.

"The monetary policy stance is likely to tip toward normalization down the road, given that the economy and inflation will likely improve," said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities Co.

The BOK lowered the borrowing costs in May after cutting them in July and October last year to support the economic recovery.

<All rights reserved by Yonhap News Agency>