2017.05.2500:16:00UTC+00South Korea’s Central Bank Continues to Stand Pat on Policy

The Bank of Korea kept its interest rate at record low levels during its latest policy meeting as household debt continued to swell and the economy grew faster than projected.

In the central bank's first rate decision since South Korea voted for a new president, BoK held its seven-day repo rate at record-low 1.25 percent. Governor Lee Ju-yeol said that the rate was suitably accommodative. The decision was broadly-expected by economists.

In its policy statement, BOK said it projected growth this year to be marginally above its April estimate of 2.6 percent, with exports growing more than expected. The central bank left its inflation projection unchanged at 1.9 percent.

While the central bank's loose monetary policy has supported economic expansion, it has come with a certain price: record household borrowing. Newly elected President Moon Jae-in is worried by the borrowing. He also pledged to bolster fiscal spending, another reason for the central bank not to slash rates.

Bank of America Merrill Lynch analyst said Moon's recent proposal for a 10 trillion won stimulus for the business year and a significant budget spending at 7 percent of annual growth could bolster inflation and economic expansion in 2018 and beyond, which is seen to increase the risk of the central bank launching a faster policy tightening cycle.