After tantalising investors with the prospect of the nation’s first rate increase in almost a year, the board led by Lee kept policy on hold, citing the threat from a slowing global outlook.
The won quickly surrendered gains from the past two days as the central bank flagged risks stemming from the trade war, skidding almost 1% to reach a one-week low.
While stressing the need to preserve economic growth, Lee also cautioned that policy makers will soon have to address the nation’s record household debt and soaring house prices.
The warning - coupled with two board members voting for a hike on Thursday - led some analysts to predict that rates could rise as early as the next review on November 30.
“My expectations for November lean towards a hike,” said Maximillian Lin, an emerging-markets Asia strategist at NatWest Markets in Singapore.
“Although the governor noted that ‘monetary policy alone can’t fix financial imbalances,’ it sounds like he still thinks monetary policy is one of the tools to be used.”
The won was down 0.8% to 1,135.25 per dollar at the close in Seoul last week. It earlier reached a one-week low of 1,135.45.
For Daishin Securities, Bank of Korea’s policy outlook lays the groundwork for a likely rate increase in November, followed by possible further tightening in the second half of next year. “Bank of Korea rather clearly implied that it will raise benchmark rates next month,” Kong Dongrak, a fixed-income strategist at Daishin Securities in Seoul, wrote in a note after the decision.
