UPDATE 1-S.Korea c.bank holds rates for 10th month as next governor eyed

Wed Mar 12, 2014 9:46pm EDT

Related Topics

* Base rate kept at 2.50 pct (Reuters poll: 2.50 pct)

* Bank of Korea seen raising rates from late 2014

* Outgoing governor's term ends March 31

By Christine Kim and Jungmin Jang

SEOUL, March 13 (Reuters) - South Korea's central bank kept interest rates steady for a 10th straight month on Thursday, as expected, as it eyes offshore risks and a slow domestic economic recovery amid low inflationary pressures.

The Bank of Korea held its base rate steady at 2.50 percent, a media official said without elaborating. Governor Kim Choong-soo will hold his final post-meeting news conference at 11:20 a.m. (0220 GMT) before his term ends this month.

All 24 analysts surveyed in a Reuters poll had predicted the central bank would hold rates on Thursday, while a majority viewed the central bank's next policy move as a hike.

Investors will now shift their focus to next week's confirmation hearings for Lee Ju-yeol, the nominee to succeed Kim, for clues on the central bank's policy outlook.

"There is much optimism in the market, as private consumption is gradually picking up. Growth this year may not be huge, but it will be enough to bring some confidence back into the economy," said Moon Hong-cheol, a fixed-income analyst at Dongbu Securities in Seoul.

Recent data shows that Asia's fourth-largest economy has been gradually on the mend.

Housing prices have risen steadily since late last year after a record period of declines, while the job participation rate hit a 15-year high last month, boding well for the government's goal to boost employment.

The central bank expects economic growth to pick up to 3.8 percent this year and 4.0 percent in 2015, from 2.8 percent estimated for last year.

Other indicators, however, suggest the central bank may have to wait a while before starting to raise rates from their lowest level since early 2011.

Consumer inflation eased to a four-month low of 1.0 percent in January, well below the central bank's target band of 2.5 to 3.5 percent, although it has forecast inflation will rise to 2.8 percent in the second half of the year.

Meanwhile, exports rose a weaker-than-expected 1.6 percent year-on-year in February after falling 0.2 percent in January, while manufacturing activity contracted last month for the first time in five months.

Markets largely shrugged off Thursday's policy decision. The won was up 0.3 on the day at 1,067.1 per dollar as of 0118 GMT, while lead March futures on 3-year treasury bonds were down 0.01 point at 105.95. The stock market's KOSPI index was up 0.2 percent at 1,935.97 points.

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