SEOUL, May 24 (Xinhua) -- South Korea's central bank on Thursday froze its benchmark interest rate as it refrained from altering the rate amid massive household debts, which can increase debt-service burden if rates rise fast.
Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members left the seven-day repurchase rate unchanged at 1.5 percent. It has been kept on hold since the bank raised it in November last year to the current rate from an all-time low of 1.25 percent, the first rate hike in almost six and a half years.
The rate freeze was in line with market expectations. According to a Korea Financial Investment Association survey of 100 fixed-income experts, 93 percent predicted a rate on hold this month.
The BOK's reluctance to tighten its monetary policy came mainly from the record-breaking household debts.
Household credit, which includes debts from financial institutions such as banks, insurers and savings banks, as well as purchase on credit, stood at 1,468 trillion won (1.4 trillion U.S. dollars) as of end-March, up 17.2 trillion won (1.59 billion U.S. dollars), BOK data showed.
It was the highest figure since the BOK began compiling the data since the fourth quarter of 2002.
The record-low-level borrowing costs encouraged households to purchase new home with borrowed money under previous governments.
The Moon Jae-in government unveiled a set of measures to control speculative investment in the real estate market, but the still low borrowing costs induced households to borrow money for new home.
The U.S. benchmark rate, ranging from 1.50 percent to 1.75 percent, already surpassed the BOK's target rate, stoking concerns that foreign capital could abruptly flow out of the South Korean financial market searching for high-yield assets.
Market watchers forecast the U.S. Federal Reserve may raise its benchmark rate further as early as next month, and it would increase pressure on the BOK to tighten its monetary stance.
Economic indicators showed a mixed picture. Production in all industries slipped 1.2 percent in March from a month earlier, after shedding 0.2 percent in February.
Output in the mining and manufacturing sectors sank 2.5 percent in March, turning downward from a 0.8 percent expansion in February.
Facility investment dipped 7.8 percent in March on a monthly basis, but retail sales, which reflect consumer spending, expanded 2.7 percent due to strong demand for durable goods such as cars and mobile phones.
Sales of passenger cars, made by local carmakers, in the domestic market gained 1.3 percent in April from a year earlier, while the credit card spending jumped 14.1 percent.
The number of Chinese tourists to South Korea surged 58.8 percent in April from a year earlier, helping bolster the private consumption indicators.
South Korea's exports, which account for about half of the economy, fell 1.5 percent in April from a year ago, but it was mainly attributed to a high base effect of the same month of last year.
The labor market conditions still faltered as companies refrained from hiring youths. The unemployment rate among those aged 15-29 stood at 10.7 percent in April.
The so-called expanded jobless rate for youths, which reflects discouraged job searchers and those preparing for a job and working part-time against their will, came in at 23.4 percent last month.
The government submitted a supplementary budget plan to help create jobs for the younger generation, and the parliament passed the extra budget plan worth 3.8 trillion won (3.5 billion U.S. dollars) earlier this week.
The BOK governor told reporters after the rate-setting meeting that if the extra budget is implemented as scheduled, it would positively influence the overall economy.
