2017.10.2010:00:00UTC+00Bank Of Korea Likely To Keep Rates Low For A Prolonged Period

The Bank of Korea is likely to keep the policy rate at 1.25 percent not just for the rest of this year, but also in 2018, Gareth leather and Shilan Shah, economists at Capital Economics, said.

On October 19, the central bank left its benchmark interest rate at 1.25 percent for the thirteenth straight month.

The governor's accompanying press conference makes clear that monetary policy will remain accommodative, economists observed.

With the crisis on the Korean peninsula showing no sign of affecting the economy, South Korea should continue to grow at a decent pace over the next year or so, they said.

That said, consumer spending will be held back by high levels of household debt in the economy.

However, a combination of strong export demand and supportive fiscal policy will help to lift growth to 3 percent next year, up from around 2.5 percent this year, Capital Economics' economists predicted.

Furthermore, inflationary pressures remain benign as noted by BoK Governor Lee, they said.

Headline inflation eased from 2.6 percent to 2.1 percent in September, which is only just above the BOK's target of 2.0 percent.

Meanwhile, core inflation, which is a better measure of underlying price pressures, was just 1.6 percent last month. Capital Economics expects inflation to average around 1.5 percent over the coming year.

"The BoK governor reiterated that monetary policy will remain accommodative, reaffirming our view that the policy rate will be kept unchanged at 1.25 percent for a prolonged period," economists said.