SEOUL, Nov. 11 (Xinhua) -- South Korea's central bank on Friday froze its benchmark interest rate at a record low for five straight months on expectations that the U.S. Federal Reserve would hike rates later this year.
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 after cutting it to that level in June.
It was in line with market expectations as experts predicted the rate on hold amid uncertainties at home and abroad. According to a Korea Financial Investment Association (KFIA) survey of 100 fixed-income experts, 99 percent expected the rate freeze.
The U.S. Fed is widely forecast to raise its interest rate in December to normalize its prolonged zero-rate policy aimed at addressing the 2008 global financial crisis.
The U.S. rate hike could spark foreign capital outflow from South Korean financial markets as the BOK lowered its policy rate sharply from 3.25 percent in July 2014 to the current level in June this year.
The prolongation in South Korea's accommodative monetary policy caused troubles in the debt-financing market as households rushed to purchase new homes with borrowed money amid the falling interest rates.
The South Korean government eased regulations on mortgage financing, while encouraging the re-development of decrepit apartment complexes in capital Seoul.
The administration announced a package of measures last week to curb speculative investment into the property market, but concerns remained about the bubble-forming due to the record-low interest rate.
Debts owed by households to commercial banks reached 695.7 trillion won (606 billion U.S. dollars) as of end-October, up 7.5 trillion won from a month earlier, the BOK data showed. Overall household debts reached 1,257 trillion won as of end-June, keeping a record-breaking momentum.
Hyundai Research Institute, local economic think tank, projected the country's household debts to touch 1,330 trillion won by the end of this year and 1,500 trillion won a year later.
Donald Trump's unexpected win in the U.S. presidential election triggered concerns here about trade with the United States, South Korea's second-biggest trading partner.
Trump has insisted on the re-negotiation of the U.S.-South Korea bilateral free trade agreement (FTA), which the president-elect said had reduced U.S. jobs.
South Korea, which depends on export for about half of its economy, has been already struggling with sagging overseas shipments amid the global economic slowdown.
The country's real gross domestic product (GDP) grew 0.7 percent in the July-September quarter compared with the previous quarter. Except for construction investment, the GDP inched up 0.1 percent, indicating a downturn in growth momentum.
