SEOUL, July 13 (Xinhua) -- South Korea's central bank on Thursday froze its benchmark interest rate at a record low, refraining from altering the rate for 13 months amid worry about the record-breaking household debts.
Bank of Korea (BOK) Governor Lee Ju-yeol and other monetary policy board members decided to put the seven-day repurchase on hold at 1.25 percent. The policy rate was lowered to the current level in June last year.
It was in line with market expectations. According to a Korea Financial Investment Association (KFIA) survey of 200 fixed-income experts, 98 percent of respondents predicted a rate freeze.
Pressures rose on the BOK to raise its policy rate as the U.S. Federal Reserve hiked its benchmark rate to a range of 1.00-1.25 percent last month.
If the Fed lifts its policy rate further, foreign capital would probably flow out of the South Korean financial market, dealing a heavy blow to the economy that depends heavily on global trade.
Despite the emerging worry about foreign capital exodus, the BOK refrained from the rate increase as higher rates increase a debt-serving burden for households.
Household debts kept a record-breaking trend as the record-low borrowing costs encouraged households to buy new home with borrowed money.
The new government under President Moon Jae-in tightened standard for mortgage loans to control any speculative investment in the real estate market.
The BOK was widely forecast to follow suits of the new government in the foreseeable future. The top central banker recently indicated the need for a rate hike.
According to the KFIA poll, fixed-income analysts were increasingly predicting higher market interest rates to reflect the expected rate increase by the BOK.
Governor Lee told reporters after the rate-setting meeting that this year's economic growth of South Korea could post as high as 3 percent if the government's supplementary budget plan to create decent jobs is implemented.
The BOK raised its 2017 growth forecast for the economy by 0.2 percentage points to 2.8 percent compared with the outlook unveiled three months earlier.
The upward revision, Lee said, did not reflect the implementation of the extra budget plan. The top central banker said that if the growth trend gets clearer, the bank would review a less accommodative monetary policy.
Lee expressed his concern about the massive household debts, adding that higher borrowing costs could put more debt-servicing burden on low-income households with low credit capability.
