South Korea’s Central Bank Keeps Policy Rate Unchanged

(MENAFN) South Korea’s central bank kept its benchmark interest rate unchanged for the second consecutive time on Thursday, reflecting ongoing domestic and global uncertainties. The Bank of Korea (BOK), led by Governor Rhee Chang-yong, opted to maintain the seven-day repurchase rate at 2.50 percent.

The decision aligned with market expectations, as 84 percent of fixed-income experts surveyed by the Korea Financial Investment Association anticipated the rate hold this month.

This move follows the BOK’s rate freezes in July and August, after previous cuts of 25 basis points each in February and May of this year, and in October and November last year. Despite worries about an economic slowdown, the central bank refrained from lowering rates due to soaring household debt and ongoing demand for mortgage loans.

Household debt owed to deposit-taking banks reached 1,164.2 trillion won (approximately 836.8 billion U.S. dollars) at the end of July, increasing by 2.8 trillion won (2.0 billion dollars) from June, according to the BOK. This marks six straight months of growth, fueled primarily by strong mortgage demand.

Apartment sales have also surged nationwide, rising from 39,000 units in February to 53,000 in June. In response, the new administration under President Lee Jae-myung, who assumed office in early June, introduced measures later that month to curb home purchases using borrowed funds.

A significant factor behind the rate freeze is the wide interest rate gap between South Korea and the United States. The U.S. Federal Reserve held its federal funds rate steady at 4.25-4.50 percent, creating a 2.00 percentage point difference with South Korea’s rate.

The BOK expressed concern that a premature rate cut might trigger capital outflows, causing a rapid surge in the won-to-dollar exchange rate.

Meanwhile, the government rolled out a supplementary budget plan including cash handouts aimed at stimulating consumer demand. However, external risks remain, especially amid ongoing U.S. tariff pressures.

Consumer confidence showed resilience, with the composite consumer sentiment index (CCSI) rising 0.6 points to 111.4 in August — marking its fifth consecutive monthly increase.

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