12.05.201122:58:00UTC+00Bank Of Korea Keeps Rates At 3.00 Percent

The members of the Bank of Korea monetary policy board on Friday voted to hold interest rates at the current level of 3.00 percent, surprising analysts who had widely expected a 25-basis-point hike.

The central bank also held off on any action at the previous meeting in April. It had hiked rates by 25 basis points from 2.75 percent in March.

"For Korea, the committee judges the economy to have maintained its underlying upward trend, given for instance that exports show continued buoyancy and that domestic demand is increasing," the bank said in a statement accompanying the decision. "Labor market conditions have also remained on a track of improvement, led by the private sector. Going forward, the committee anticipates that the domestic economy will keep up its underlying trend, even in the presence of external risks."

The move followed a decline in consumer and producer prices.

CPI came down to 4.2 percent in April from the 29-month high of 4.7 percent in March - but inflation still remains outside the central bank's target range of 3 to 4 percent.

On a monthly basis, inflation was flat compared to a forecast of 0.4 percent after rising 0.5 percent in March. Core CPI was up 3.2 percent on year after climbing 3.3 percent in the previous month.

Producer prices came down from the 28-month high of 7.3 percent in March to 6.8 percent - but they too remain uncomfortably high, sparking speculation for a rate increase.

"Consumer price inflation eased in April compared to the preceding month, due mostly to the declines in prices of vegetables," the bank said. "There is a possibility of the high rising price trend persisting in the coming months, however, driven largely by increased demand pressures from the economic upswing, by instability of international oil prices, and by elevated inflation expectations."

Before raising rates by 25 basis points on November 15 to 2.50 percent, the bank had left rates unchanged since it unexpectedly raised rates by 25 basis points from the record low of 2.00 percent on July 9.

Before that, the rate had held steady for 16 straight months, after the bank had trimmed rates six times in the previous four months.

"Looking ahead, the committee, while taking overall account of financial and economic conditions both at home and abroad, will conduct monetary policy with a greater emphasis on ensuring that the basis for price stability is firmly anchored while the economy continues its sound growth," the bank said.