Bank of Korea holds key rate amid uncertainty

These are all significant headwinds for the economy and to raise interest rates in the middle of it all could be quite risky.

Britain’s economy has grown strongly for more than two years but inflation remains below zero and the Bank has kept rates at the level to which they were cut during the worst of the financial crisis almost seven years ago.

And with inflation remaining in negative territory – at minus 0.1 per cent in October – there is little rush for the MPC to pull the trigger on a rate rise. “The price of oil had fallen markedly again, increasing the likelihood that headline inflation rates would remain subdued, and nominal-wage growth had levelled off”.

Sterling gained against the euro and traded at its highest in nearly three weeks against the dollar on Thursday ahead of a Bank of England statement that some are looking to for a more bullish tone on the timeline for interest rate hikes.

“The pound continues to be threatened by the Bank of England’s clear reluctance to begin raising United Kingdom interest rates, while other signs of sluggish economic growth and static inflation are also reducing any pressure on the BoE to act”, said FXTM research analyst Lukman Otunuga.

Indeed, the BoE argues not to over-estimate the recent rises in wage growth as inflationary driver; on the contrary, it points towards additional downside risks to the expected moderate recovery of inflation over the coming months, due to renewed lower oil prices. The Federal Reserve is widely expected to raise US interest rates for the first time since 2007 next week, giving the Bank a chance to see how the global economy and markets react before it has to make up its mind on when to follow suit.

The U.S. rate hike is feared to trigger foreign funds flow out of emerging economies, including South Korea.

The bank said the scope of future monetary easing would depend on the inflationary impact of “movements on global commodity and financial markets”.

The outlook for inflation reflects the balance between persistent drags from factors such as sterling and world export prices and prospective further increases in domestic cost growth.

Ian McCafferty has been the sole dissenter since August, seeking a 25 basis points rate hike, suggesting that policymakers are in no hurry to tighten monetary policy. Over the past year and a half the Fed has had a hat trick of forecast misses, Bullard noted, with a too-optimistic outlook for growth and a rebound of inflation to the Fed’s target, and a too pessimistic view of how fast unemployment would decline.

“We expect interest rates will finally move up in 2016, but this is not a stone dead certainty”.