The Bank of Korea kept the benchmark interest rate unchanged at 1.5 percent and revised its economic growth outlook this year down to 2.7 percent from 2.8 percent, officials said Thursday.

Korea’s monetary policymakers appear to have chosen to take a wait-and-see stance toward the interest rate as the uncertainty over a potential rate hike in the U.S. lingers, analysts said.

There were some market predictions that the BOK might conduct a rate cut once more amid the weak improvement in private consumption and the ongoing doldrums in exports.

Analysts attributed the key rate freeze to the growing expectations that the U.S. Federal Reserve would push for a delay in raising interest rates in the wake of the weaker-than-expected employment index in the U.S. and mounting worries over global deflation.

In his news briefing after publicizing the October rate, BOK Gov. Lee Ju-yeol acknowledged the emerging market forecast of a hike delay to next year. But he said, “On the other hand, the possibility of a hike in the U.S. within the year is still high.”

Lee stressed that Fed Chair Janet Yellen had continued to hint at a hike several times, adding the timing of a hike continues to be uncertain at present.
 
It could be a critical policy failure if the BOK cuts the rate and the U.S. raises its rate within several weeks or months ― which would possibly trigger massive capital flight from the local stock market.

The last two Fed rate-setting meetings for this year ― of the eight scheduled ― will be held on Oct. 27-28 and Dec. 15-16, respectively, in Washington, D.C.

The Korean central bank had already lowered the rate four times ― or 100 basis points in total from 2.5 percent in July 2014 ― between August 2014 and June 2015. It has stayed at the record low of 1.5 percent for the fourth consecutive month.

Market analysts say that snowballing household debt is estimated to be a factor hampering the BOK’s further monetary easing.

In August, financial firms’ lending involving mortgages to the household sector surged by 9.8 trillion won ($8.7 billion) from a month earlier. Households’ outstanding debt owed to financial banks and secondary financial firms reached 773.1 trillion won.

The central bank also revised its outlook on GDP growth this year down to 2.7 percent, from its estimate of 2.8 percent in July.

Lee said the revision was attributable to weaker-than-expected performance in consumption and exports during the second quarter.

“Though (we) estimated that the second-quarter growth would be set at 0.4 percent in July, the real growth stood at 0.3 percent,” he told reporters.

The International Monetary Fund has already cut its outlook on the nation’s economic growth rate to 2.7 percent.

The IMF said that major emerging countries in the world are expected to post 4 percent growth on average. It added that five major Southeast Asian countries will grow 4.6 percent on a collective basis.

Meanwhile, for the 2016 economic growth in Korea, the BOK revised its forecast down ― from the earlier 3.3 percent to 3.2 percent.

By Kim Yon-se (kys@heraldcorp.com)