South Korea raises interest rate for first time in a year

[SEOUL] South Korea on Friday raised its key interest rate for the first time in a year, in a bid to curb snowballing household debts and a housing price hike casting a pall over Asia's fourth-largest economy.

The central Bank of Korea raised the benchmark overnight inter-bank lending rate by a quarter point to 1.75 per cent - the first rate hike since November last year.

Outstanding household debts at the world's 11th-largest economy hit a record 1,514 trillion won (S$1.78 trillion) as of late September, while housing prices have surged, especially in the capital Seoul and its suburb areas.

Housing sales prices in Seoul and its suburb areas - home to a half of the country's 50 million population - rose three per cent from January to October this year, the highest in three years.

The decision came as the South faces double challenges of growing household debts and economic slowdown as global trade war sapped demand for made-in-Korea cars and high-tech gadgets, raising concerns over the country's export-reliant economy.

Overseas shipments account for more than half of the country's economy.

The central bank was largely expected to raise the key rate this month, according to multiple local surveys, due to concern of capital flight from Seoul financial markets after a series of rate hikes in the US.

The US Fed's current benchmark rate is 2 to 2.25 per cent, amid speculations that the Fed is mulling more rate hikes next year.

AFP