SEOUL, Oct. 13 (Xinhua) -- South Korea's central bank on Thursday froze its benchmark interest rate for four straight months on worry about fast-rising household debts amid record-low borrowing costs.
Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members decided to keep the seven-day repurchase rate on hold at an all-time low of 1.25 percent.
The BOK cut the policy rate by 25 basis points in June to the current level. The bank began to lower borrowing costs from 3.25 percent in July 2012, triggering a swift increase in household debts.
The massive household debts led central bankers to refrain from cutting the policy rate further despite chronic export slump and the ongoing restructuring in shipbuilding and shipping industries.
Household credit, which includes household debts from banks and non-bank lenders as well as purchase on credit, reached a record high of 1,257.3 trillion won (1.12 trillion U.S. dollars) as of end-June, up 54 trillion won from six months ago.
For four years from July 2012 to June 2016 when the central bank lowered its policy rate from 3.25 percent to 1.25 percent, average debts owed by households to lenders increased 23.8 percent to 72.06 million won (64,000 U.S. dollars).
Bank loan to households kept a sharp monthly growth, from a 6.3 trillion-won increase in July to rises of 8.6 trillion won in August and 6.1 trillion won in September respectively.
The BOK also refrained from altering rates amid rising expectations for the U.S. Federal Reserve's interest rate increase within this year. Fed policymakers have strongly indicated a rate hike by the end of this year.
Governor Lee said during a recent parliamentary inspection of government offices that the Fed is forecast to raise rates once by the end of this year, hinting at his cautious stance on demand for the BOK's further rate cut.
However, demand for the BOK's additional monetary easing is expected to continue amid chronic export slump and the ongoing restructuring among shipbuilders and shipping lines.
Exports, which account for about half of the economy, declined 5.9 percent in September from a year ago. The country's exports kept falling in the past 21 months except for August.
The government-led restructuring among shipbuilders and shipping lines is going on after major three shipbuilders, including Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering, pledged to reduce workers by 30 percent and overcapacity by 20 percent by the end of 2018.
Hanjin Shipping, South Korea's largest container shipping line, filed a court receivership last month, which is expected to raise unemployment rate in the sector.
Hit by sagging exports and the ongoing restructuring, employment among manufacturers declined 76,000 in September, keeping a downward trend for three straight months.
Samsung Electronics decided to discontinue its latest flagship smartphone, Galaxy Note 7, as cases of the phones catching fire and overheating were reported globally. The company revised down its preliminary figure for the third-quarter operating profit by a third to reflect losses from the decision.
The discontinuance scandal from the crown jewel of Samsung Group, South Korea's No.1 family-run conglomerate, would weigh down on the country's economic recovery at least by the end of this year.
Workers in the country's biggest automaker Hyundai Motor and its affiliate Kia Motors went on partial strikes, delaying auto production and damaging car exports. It is also a risk factor facing the economy.
