No Key Rate Hike

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The Bank of Korea has decided to keep the key rate at the lowest level for the 16th consecutive month. However, the bank upgraded Korea's economic growth outlook for this year to 3 percent, raising the possibility of an interest rate hike in the days to come.

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As expected, the Bank of Korea's Monetary Policy Committee has decided to keep the key rate unchanged. But chances are now high that interest rates will go up.

[Soundbite] Lee Ju-yeol(Governor, Bank of Korea) : "Conditions for reducing the extent of monetary easing have become mature enough."

The primary reason is the higher economic growth outlook. The Bank of Korea has upgraded the nation's economic growth outlook for this year by 0.2 percentage points to 3 percent. The higher outlook stems from growing exports and facility investment as well as steady recovery in consumption. Some members of the BOK's Monetary Policy Committee called for raising interest rates for the first time in about six years. Interest rates will likely be raised as early as next month or early next year, as the committee will not convene in December. The final decision will be determined by whether or not the Korean economy continues to grow in line with the bank's expectations.

[Soundbite] Cho Young-moo(LG Economic Research Inst.) : "Expectations for recovery in domestic demand are falling these days. The important factors is whether or not domestic demand will recover and how fast economic uncertainties will be eliminated."

North Korea's nuclear issue and trade disputes with the United States could largely determine the outcome. The deployment of the U.S. THAAD missile defense system is also one of the factors. The Bank of Korea said that although the row over the U.S. missile defense system has undermined Korea's economic growth this year by 0.4 percentage points, its impact will gradually dissipate in the second quarter of next year.