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Roundup: S. Korea freezes interest rates at record low for 6 months

Xinhua, December 10, 2015 Adjust font size:

South Korea's central bank on Thursday froze the benchmark interest rate at a record low of 1.5 percent, keeping a wait-and-see stance for six straight months.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members decided unanimously to keep the benchmark 7-day repurchase rate on hold at 1.5 percent. The bank lowered it by a quarter percentage point in March and June each to the all-time low.

The rate decision was in line with market expectations as experts predicted the rate freeze on the back of modest recovery in private consumption and the expected rate hike in the United States.

The BOK said in a statement that the domestic demand kept, and will keep, a recovery trend though uncertainties are running high in the growth path to the South Korean economy.

The statement noted that the global economy is expected to keep a modest recovery, but it said that the change in the U.S. monetary policy would increase the global financial market's volatility and weaken growth in emerging economies.

The U.S. Federal Reserve is scheduled to hold its regular rate-setting meeting next week, widely expected to raise the zero-level policy rate for the first time since the 2008 global financial crisis.

The U.S. rate hike is feared to trigger foreign funds flow out of emerging economies, including South Korea.

Massive household debts discouraged the BOK from cutting the policy rate further. The country's household debt is expected to top 1,200 trillion won (1.02 trillion U.S. dollars) within this year.

Higher borrowing costs in South Korea would be difficult given slowing exports, which declined 0.6 percent in the third quarter from three months earlier. The exports, which make up about half of the economy, kept a downward trend for 11 months in a row.

The private consumption, however, posted a recovery thanks to the record-low interest rate and the government's measures to stimulate the economy.

Retail sales increased for four months through October, and car sales in the domestic market jumped 16.3 percent in November from a year earlier.

Sales in department stores expanded 17.4 percent in November from a year earlier, and gasoline and diesel sales grew 5.4 percent last month.

Exports, however, fell 4.7 percent in November from a year ago, with production in the mining and manufacturing industries reducing 1.4 percent in October from the previous month.

The state-run Korea Development Institute (KDI) lowered its 2016 growth forecast from 3.1 percent to 3.0 percent, while downgrading this year's growth outlook from 3.0 percent to 2.6 percent. Enditem