South Korea freezes policy rate at 2.5% ahead of FOMC meeting

South Korea's central bank froze its policy rate at 2.5 percent on Thursday, keeping its wait-and-see stance for seven straight months ahead of the U.S. central bank's regular monetary policy meeting. Bank of Korea (BOK) Governor Kim Choong-soo and six other monetary policy board members decided to keep the benchmark seven- day repurchase rate on hold at 2.5 percent in December, refraining from altering the rate since May when it cut the borrowing costs by 25 basis points. The rate freeze was widely expected due to uncertainties ahead of the Federal Open Market Committee (FOMC) two-day meeting scheduled for next Tuesday. Concerns emerged over the U.S. Federal Reserve's tapering of its asset purchases following the upbeat U.S. jobs data. The U.S. jobless rate fell to a five-year low of 7 percent last month. St.Louis Fed President James Bullard said on Monday that probability of a reduction in asset purchases increased based on labor market data, while Richmond Fed President Jeffrey Lacker expected discussion about possibility of reducing the bond purchases at the December policy meeting. Expectations for the timing of the Fed tapering were split, with some forecasting the scale-back in December and others predicting the March 2014 tapering. The South Korean economy maintained its modest recovery trend, offering no momentum to the central bank to change the benchmark interest rate. Production in the mining and manufacturing industries increased 1.8 percent in October, the highest growth in 11 months. The real gross domestic product (GDP) rose 1.1 percent in the second and third quarters compared with three months earlier, ending the prior zero-percent growth trend. The BOK said in a statement that the economy kept its recovery in accordance with the trend line amid growth in both exports and domestic demand, noting that negative GDP gap was expected to be narrowed down. The negative GDP gap, or minus output gap, means actual GDP growth stays below the one for potential growth. The narrower gap indicates the real GDP growth will near closer to the potential growth. The central bank, however, noted that downside risk factors to the economy remained such as the Fed tapering and uncertainties over the U.S. fiscal conditions. Inflationary pressures remained in the low level. Consumer price inflation accelerated to 0.9 percent in November from 0.7 percent in the prior month, but it stayed at the zero-percent range for three straight months.