South Korea holds interest rate at record low

[SEOUL] South Korea's central bank left its key interest rate unchanged on Friday at a record low of 1.5 per cent, while voicing concern over snowballing household debt.

The decision by the Bank of Korea was widely expected, following a cut of 25 basis points in June. Bank policymakers have slashed borrowing costs three times in the past year, citing sagging exports and the impact of the global economic slowdown.

"Local consumer spending and investment showed signs of recovery ... but exports continued their downward trend," the BOK said in a statement.

Accounting for about half of South Korea's gross domestic product, exports have performed badly since the beginning of the year.

Shipments have shrunk every month, and a slowdown in China - the country's biggest trading partner - is expected to take a further chunk out of Asia's fourth-largest economy.

The low global oil price has kept inflation hovering below one percent.

"We will closely monitor factors at home and abroad including...the growth of household debt and the monetary policy of the US Fed," it said.

Household debt in South Korea amounted to more than 615 trillion won (S$746.3 billion) as of September, with housing loans increasing at a record pace this year.

Concerns are growing that a hike in interest rates could lead to massive mortgage default.

In July, the central bank cut its 2015 economic growth forecast for the third time this year, to 2.8 per cent, citing sluggish exports and weak domestic consumption.

AFP