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Roundup: S. Korea freezes policy rate at 3.5 pct for 13th time

0 Comment(s)Print E-mail Xinhua, August 22, 2024
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SEOUL, Aug. 22 (Xinhua) -- South Korea's central bank on Thursday froze its policy rate for the 13th successive time amid lingering uncertainty over massive household debt and higher headline inflation.

Bank of Korea (BOK) Governor Rhee Chang-yong and other monetary policymakers decided to leave the benchmark seven-day repurchase rate unchanged at 3.50 percent.

It was in line with market expectations. According to the Korea Financial Investment Association's poll of 100 fixed-income experts, 90 percent predicted the rate freeze this month.

The central bank put the rate on hold in January, February, April, May and July this year and seven times last year after delivering policy rate hikes by 3.0 percentage points between August 2021 and January 2023.

The consecutive rate freeze came amid the remaining uncertainty about household debt and headline inflation.

Consumer prices gained 2.6 percent in July from a year earlier, higher than an increase of 2.4 percent in the previous month.

The consumer price inflation hovered below 3 percent for the fourth consecutive month, but it continued to surpass the BOK's midterm inflation target of 2 percent.

The headline inflation had roughly been on the decline after peaking at 6.3 percent in July 2022.

Inflationary pressure remained in recent months on the back of the spike in agricultural products prices, which went up 9.0 percent in July on a yearly basis and lifted the headline inflation by 0.34 percentage points.

The BOK said in a statement that the consumer price inflation increased to 2.6 percent in July due to accelerated price growth in petroleum products, but it noted that inflation would continue its slowing trend owing to the base effect from the sharp rises in global oil and agricultural product prices last year.

Massive household debt discouraged the BOK from lowering the key rate early as the earlier-than-forecast rate cuts would lead to faster growth in mortgage loans.

Household credit, which refers to debts owed by households to banks and other lenders in addition to the purchase on credit, swelled 13.8 trillion won (10.3 billion U.S. dollars) to 1,896.2 trillion won (1.42 trillion dollars) in the April-June quarter.

It marked the highest household credit since relevant data began to be compiled in 2002 amid robust demand for home-backed loans, affected by higher housing transactions.

The number of housing transactions across the country grew to 171,000 in the second quarter from 139,000 in the first quarter.

Mortgage loans to households jumped 16 trillion won (12 billion dollars) during the second quarter due to the offer of government-backed mortgage loans and the eased regulations to prop up the housing market.

Higher borrowing costs increased the debt-servicing burden for households struggling with record-high debts that would negatively influence domestic consumer spending.

The BOK said housing prices in Seoul and its surrounding areas increased at a faster pace due to higher transactions, noting that household loans sustained growth at a high level, driven by housing-related loans.

Worry remained about a broad gap between the South Korean and the U.S. interest rates.

The U.S. Federal Reserve froze its target range for the federal funds rate at 5.25-5.50 percent for the seventh straight time in June.

Expectations ran high for the U.S. central bank to cut its benchmark interest rate in September. Enditem

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