[THE INVESTOR] In a widely expected move, the Bank of Korea kept the key interest rate at 1.25 percent for October, holding it to the record low for the four straight month.

In June, the central bank made a surprise rate cut, citing a need to support the economy.

South Korea‘s exports backtracked 5.9 percent from a year earlier in September due mainly to sluggish shipments of cars and mobile devices. Outbound shipments came to US$40.9 billion last month, down from $43.4 billion for the same month last year, according to government data.

Following is the full text of the BOK’s statement on its monetary policy decision for October.

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The Monetary Policy Board of the Bank of Korea decided today to leave the Base Rate unchanged at 1.25 percent for the intermeeting period.

Based on currently available information the Board considers that the trend of economic recovery in the US has been sustained and that the Chinese economy has maintained its moderate pace of growth. However, the improvements in the euro area have remained weak. The Board forecasts that the global economy will maintain its recovery going forward, albeit at a moderate pace, while being affected by factors including changes in the monetary policies of major countries such as the US, the uncertainties related to Britain’s exit from the European Union, and economic conditions in emerging market countries.

Looking at the Korean economy, exports have declined but domestic demand activities appear to have continued their improvements, driven mainly by investment in construction. On the employment front, the trend of increase in the number of persons employed slowed in September, while the unemployment rate rose compared to that in September of last year. The employment-to-population ratio was meanwhile slightly higher. The Board forecasts that the domestic economy will sustain its trend of modest growth going forward, owing chiefly to a gradual recovery in global trade and to the effects of expansionary macroeconomic policies. However, in view of economic conditions domestically and abroad, it judges the uncertainties surrounding the growth path to be high.

Consumer price inflation rose from 0.4% the month before to 1.2% in September, owing chiefly to increases in agricultural product prices. Core inflation excluding agricultural and petroleum product prices also rose to 1.3%, from 1.1% in August. In the housing market, the upward trends of sales and leasehold deposit prices have continued, centering around the Seoul area. Looking ahead the Board forecasts that consumer price inflation will gradually rise, due mainly to the disappearance of the effect of the temporary cut in electricity fees and to the rebound in international oil prices.

In the domestic financial markets since September, long-term market interest rates and the Korean won-US dollar and Korean won-Japanese yen exchange rates have risen, in line mainly with strengthened expectations of a policy rate hike by the US Federal Reserve. Stock prices have rebounded after having declined, owing in part to the rise in international oil prices. Household lending has sustained a trend of substantial increase at a level exceeding that of recent years, led by mortgage loans.

Looking ahead, the Board will conduct monetary policy so as to ensure that the recovery of economic growth continues and consumer price inflation approaches the target level over a medium-term horizon, while paying attention to financial stability. In this process it will closely monitor the trend of increase in household debt, any changes in the monetary policies of major countries, and the progress of corporate restructuring.

(theinvestor@heraldcorp.com)