* Base rate kept at 2.50 pct (Reuters poll: 2.50 pct)
* Governor Lee makes policy debut with hawkish remarks
* Lee's remarks back market's view for rate hike in late
(Recasts with news conference, new analyst comment, markets)
By Christine Kim and Choonsik Yoo
SEOUL, April 10 South Korea's new central bank
chief had a strong policy debut on Thursday, sending plain
signals supporting the market's view of an interest rate hike
coming late this year - and delivering on a promise to
communicate more clearly than his predecessor.
The Bank of Korea's monetary policy committee kept the
policy rate unchanged at 2.5 percent for an 11th
consecutive month in a unanimous vote, matching the findings of
the Reuters poll.
The new governor, career central bank technocrat Lee
Ju-yeol, 61, kept his remarks short and clear at his
post-meeting news conference and made plain the content and pace
of economic growth would drive policy.
"Should the economy keep improving and South Korea's output
gap narrow on top of inflation rising on demand-led pressures,
then we will be able to discuss moving interest rates
pre-emptively," Lee told his maiden policy news conference.
This was a clear definition of the conditions for a policy
change, something hard to expect hearing from his predecessor,
Kim Choong-soo, who was criticised for causing confusion among
investors regarding central bank policy direction.
"His remarks today can be summed up as meaning the output
gap will be a driving factor in rate policy and that the central
bank can consider tightening policy even before the headline
inflation quickens rapidly," said Young Sun Kwon, economist at
Nomura in Hong who had worked at the Bank of Korea.
GOVERNMENT HAS STRONG GRIP ON CENTRAL BANK POLICY
Lee's views on economic indicators were also bullish,
including one note that the downgrade in this year's inflation
rate was due to poor economic performance in the first quarter,
and that inflation would still rise gradually.
The Bank of Korea raised this year's economic growth
forecast to 4 percent from the previous 3.8 percent while
cutting the inflation projection to 2.1 percent from 2.3
percent. Lee said the higher growth forecast was due to a new
calculation method introduced recently.
Despite Lee's generally hawkish comments, former central
bank officials and past practices indicate the Bank of Korea
will eventually take the lead on its policy changes from the
government under the country's strong presidential system.
President Park Geun-hye, in office for just more than a
year, has not set any ambitious growth goal while but emphasised
the need for stable inflation and a rebalancing of Asia's
fourth-largest economy towards domestic service industries.
Park's selection of Lee in March as the head of the central
bank, which is mandated to maintain stable inflation and a sound
financial system, had already been perceived by many as
suggesting the monetary policy would be more hawkish than
At Thursday's news conference Lee said China's economic
slowdown - by far the largest downside economic risk globally -
was not to a worry at present, saying he believes Beijing has
capability to deal with any severe downturn.
Data out last week showed improvements in advanced economies
had boosted exports by an annual 5.2 percent in March, up from a
0.7 percent gain for the January-February period, which is often
combined to mitigate distortions from Lunar New Year holidays.
Sales at South Korea's top department and discount stores
also improved in March over February, indicating South Korea's
recovery seems to be on track.
Housing prices maintained their rising trend in March,
gaining for a seventh month in a row and at the fastest pace in
28 months. ID:nS6N0IM02P]
Inflation remains under the bottom line of the central
bank's 2.5 to 3.5 percent target band, although core inflation
rose to 2.1 percent in March, hinting headline inflation may
soon follow suit.
(Editing by Eric Meijer)