Policy rate held unchanged at 3.50
Bank of Korea cuts growth forecast, keeps inflation view
BOK Governor tells markets not to bet against rate hike

SEOUL, May 25 Reuters South Korea39;s central bank on Thursday flagged it may not be done tightening, sending bond yields soaring, after it held rates steady for a third straight meeting and trimmed this year39;s economic growth forecast.

The Bank of Korea39;s monetary policy board unanimously voted to keep its policy rate unchanged at 3.50, in a decision matching the view of economists surveyed by Reuters.

It trimmed this year39;s economic growth forecast to 1.4 from the previous 1.6, while keeping its inflation projection unchanged at 3.5.

Governor Rhee Changyong, however, issued some hawkish comments on the future policy stance challenging market expectations.

The board will make decisions depending on inflation and other data, and let me request you not to think that we will never be able to raise the rates, Rhee told reporters, pointing to a stunning rate hike this month by Australia39;s central bank.

Bond yields soared, with the shorterterm yields rising more sharply than longerterm ones, as Rhee39;s comments prompted investors to cut back bets that the Bank of Korea would not raise rates further but start cutting them this year.

The threeyear treasury bond yield rose as much as 12.5 basis points to 3.496 and the 10year yield by 9.7 basis points to 3.597.

Some of his comments were indeed hawkish, but the…