SEOUL, (PNA/Xinhua) — South Korea’s central bank on Thursday froze its policy rate at 2.5 percent, keeping its wait- and-see stance for four straight months, ahead of the September Federal Open Market Committee (FOMC) meeting scheduled next week.
Bank of Korea (BOK) Governor Kim Choong-soo and monetary policy board members decided unanimously to keep the benchmark seven-day repurchase rate on hold at 2.5 percent after lowering the rate in May. The seven-member committee cut borrowing costs by 25 basis points in July and October last year.
The decision was in line with market consensus as experts forecast central bankers would refrain from altering the rate ahead of the September FOMC meeting where the Fed’s monthly bond purchases might be reduced. “I’ve been saying for a long time that the QE reduction is a matter of time. The Fed will decide on the size of the reduction after considering the pace of its economic recovery and the possible impact on the market that may respond to it very sensitively,”Governor Kim told a press conference.
Despite lingering uncertainties over the U.S. economy, the Fed was widely expected to scale back US$ 85 billion in its monthly bond purchases as early as in September. U.S. non-farm payrolls for August rose by 169,000, missing analysts’ estimates of an 180,000 growth.
Market watchers, however, forecast that the tapering would not have a significant impact on the global financial markets as it has been already priced in.”Even if the Fed starts to reduce its bond purchases as early as in September, the tapering process will likely be a long and gradual process, where a monthly cut in bond purchases will be only 10-15 dollars,”said Yoo Yeo-sam, a fixed- income analyst at KDB Daewoo Securities in Seoul.
Expectations remained that the Fed may delay its decision to cut asset purchasing program given the downbeat employment data.” Given the scale of unresolved uncertainties, there is a chance that the tapering will be postponed,”said Peter Park, a fixed- income analyst at Woori Investment & Securities.
The BOK said in a statement that uncertainties over the Fed’s QE tapering and the Syrian crisis remained as major downside risks to the global economy.
U.S. President Barak Obama hinted at diplomatic solution over the Syrian crisis by saying he would make joint efforts with Russia and other partners to encourage Syria to give up chemical weapons, but concerns remained that the possible military strike against Syria would raise global oil prices.
Dubai crude, South Korea’s benchmark, averaged US$ 107.06 per barrel in August, up 3.4 percent from the prior month.
Governor Kim said that global oil prices has risen recently due to geopolitical risks in the Middle East as well as a fall in U.S. oil inventory, but the governor forecast that crude oil would not rise much higher than the current level.