Bank of Korea Governor Lee Seong-tae and his board on Thursday voted to keep interest rates on hold, maintaining the record low of 2.00 percent, in line with expectations.
Before also holding rates at the March 12 and April 9 meetings, the bank had trimmed rates by 50 basis points to 2 percent on February 12, marking the sixth rate cut in the previous four months.
The pace of the domestic economic slowdown has moderated thanks to the narrowing scale of the decline in exports and proactive fiscal and monetary policy strives although domestic demand remains sluggish, the minutes said. The downside risk to economic growth is thought to persist because of the sustained world-wide economic slump and the deterioration of labor market conditions.
The BoK had pared rates by 25 basis points on October 9 and then slashed them again by 75 basis points in an emergency meeting on October 27. Then on December 11, the bank slashed rates by another 100 basis points in the largest rate cut in the bank's history - since it started adopting a benchmark interest rate in 1999. On January 9, the bank trimmed rates by 50 basis points to 2.50 percent.
Before raising rates in August to combat inflation, the board had left interest rates at 5.00 percent for 11 straight meetings.
Consumer price inflation has been decelerating thanks to stable international oil prices coupled with the easing of demand-pull pressures owing to the economic downturn, and this trend seems set to continue for some time, the minutes said. In the real estate market, prices have shown upward movements in some part of Seoul and its surrounding areas in line with the increase in transaction volumes.
The bank also noted that the economic downturn is clearly slowing, and predicted that the South Korean economy may see mildly positive growth by the end of the year. The upward trend of prices is expected to flatten out rapidly, the bank said, due to the downward stabilization of cost factors brought about by the appreciation of the South Korean won.
Looking ahead, the committee will maintain accommodative policy stance for the time being and do what is needed to give support to economic recovery while helping bring about financial market stabilization, the minutes said.
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