SEOUL, Feb. 23 (Xinhua) -- South Korea's central bank on Thursday froze its benchmark interest rate at a record-low level amid mixed signals at home and abroad, including recovering exports and slumping consumption.
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 1.25 percent, the lowest ever facing the South Korean economy. The rate has stayed in the level since June last year.
The decision was in line with market expectations. According to a Korea Financial Investment Association survey of 200 fixed-income experts, 99 percent of respondents had expected the rate freeze.
Economic indicators showed mixed signals. Exports, which account for about half of the economy, advanced 11.2 percent in January from a year earlier, keeping a double-digit growth momentum through the Feb. 1-20 period.
Concerns, however, remained about the country's exports amid global economic slowdown and uncertainty about the new U.S. government's trade policy, which is forecast to lean toward protectionist moves.
Private consumption got lackluster amid the unabated political unrest, caused by a corruption scandal embroiling President Park Geun-hye that led to Park's impeachment.
Consumers refrained from spending money on political uncertainty as seen in the December retail sales that shed 1.2 percent compared with the previous month.
The January confidence among consumers over the economy tumbled to the lowest in almost eight years. Sales of gasoline and diesel declined 7.3 percent in the month compared with a year earlier.
The BOK cut its 2017 growth outlook by 0.3 percentage points to 2.5 percent in the January rate-setting meeting, mirroring its worry about the sluggish economy.
Despite the concern, the central bank would be hard to keep its accommodative monetary stance for a long time on expectations for the U.S. Federal Reserve's interest rate hike in the near future.
After raising its policy rate by a quarter percentage point, the Fed indicated three rate increases later this year. If the BOK fails to follow the Fed's suit with a certain time lag, foreign capital could abruptly flow out of the South Korean financial market.
Influenced by higher rate hikes in the United States, market rates in South Korea recently turned upward, raising a debt-servicing burden for households that are struggling with massive debts.
Household credit, which includes debts owed to banks and non-banking institutions as well as purchase on credit, posted the biggest annual growth of 141 trillion won (123 billion U.S. dollars) in 2016.
In the past two years, the household credit increased 259 trillion won as the BOK lowered its policy rate from 3.25 percent in July 2014 to an all-time low of 1.25 percent in June 2016.
The record-low rates drove households to purchase new homes with borrowed money, while companies refrained from spending capital on facilities and employment.
As of end-2016, South Korean companies held 383.5 trillion won in bank deposit accounts, taking up 30.9 percent of the total. It was up 10.2 percent, or 35.4 trillion won, from a year earlier.
In comparison, deposits held by households rose 3.8 percent in the cited period. (1 U.S. dollar equals to 1139.32 South Korean won)
