South Korea's central bank pledged to keep monetary policy loose next year after its survey showed December consumer sentiment at the weakest in 20 months while inflation expectations were at the lowest on record. The Bank of Korea, in its 2015 policy statement, said on Wednesday some reduction in "the magnitude of policy easing" was possible should inflation pressure rise next year. But the central bank added it would be "careful" even if this happens.
Earlier, the BOK said its consumer sentiment index shed one point in December to 102, the lowest since April 2013, and the consumers' median inflation expectation for the next 12 months fell to a record low of 2.6 percent from 2.7 percent in November. "There wasn't any concrete word on rate changes but it sounded dovish in general," said Kong Dong-rak, a fixed-income analyst at Hanwha Securities.
"The statement was in line with the market's expectation for an additional cut." South Korean bond futures were under pressure from losses in US debt prices but the front-end futures on 3-year treasury bonds pared losses to trade at 108.01 by 0332 GMT, down 0.02 points on the day but off a session low of 107.94. The BOK statement said the recovery of Asia's fourth-largest economy would be modest and inflation would remain low for the time being.
It also noted the global economy still faced "downside" risks. Since July, the government has implemented stimulus measures such as increased fiscal spending, more financial support and easing of mortgage lending restrictions, while the central bank has cut interest rates twice. The measures helped lift the country's quarterly economic growth to 0.9 percent in July-September from 0.5 percent in April-June, but the prospects are now dimmer as many economies are experiencing a slowdown.