UPDATE 1-Bank of Korea holds rates, weak job growth puts policymakers in a bind


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SEOUL (Reuters) – South Korea’s central bank held policy steady on Thursday for a fifth straight monetary meeting, as the fragile state of the job market and a U.S.-China trade war cloud the outlook.

FILE PHOTO: A South Korea won note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

The Bank of Korea kept its seven-day repurchase rate KROCRT=ECI at 1.50 percent, as expected by 15 of 16 economists in a Reuters poll.

After the BOK decision, the won KRW= is down 0.8 percent against the dollar while the KOSPI .KS11 has barely moved. September futures on three-year treasury bonds KTBc1 were down 0.05 points to 108.26

Momentum for achieving the BOK’s target of a 3 percent growth this year appeared to wane after an export boom ground to a halt in June in the face of escalating trade tensions between the United States and China.

Downturns in South Korea’s labour market and feeble price growth have added to policymakers’ concerns over the extent of recovery in Asia’s fourth largest economy.

Angela Hseigh, an analyst at Barclays, said the weak job market, low demand keeping inflationary pressure weak, and the uncertainty around trade policy would all contribute to the BOK’s decision to hold rates.

“We see risks of further delays to our fourth-quarter rate hike call if there is no meaningful improvement in the labour market,” she said. Park Chong-hoon, an economist at Standard Chartered’s Korean unit said an update of the BOK’s quarterly projections due later on Thursday would provide clues to the bank’s policy tightening plans for this year.

“If the BOK cuts its growth outlook from current 3 percent, I say any policy tightening is out of question this year.”

The BOK will issue an update of its quarterly projections at 0430 GMT, and in doing so could take into account the factors delaying further policy tightening, such as the lack of jobs growth.

The monthly average of 142,000 jobs added between January and June this year, is the slowest growth seen since the 2008-09 global financial crisis, according to Statistics Korea.

Headline inflation remained at 1.5 percent in June, unchanged from a month earlier and below the BOK’s target of 2 percent.

Even with difficult domestic conditions, a majority of analysts see the central bank raising its benchmark rate in the second half to curb potential capital outflows as the U.S. Federal Reserve continues to raise its rates.

Reporting by Cynthia Kim and Christine Kim; Additional reporting by Hayoung Choi; Editing by Eric Meijer


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