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S. Korea freezes interest rates at 1.25 pct for July

Xinhua, July 14, 2016 Adjust font size:

South Korea's central bank on Thursday froze interest rates at an all-time low of 1.25 percent to wait and see the effect from the rate cut in the previous month.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members decided to keep the benchmark seven-day repurchase rate on hold at 1.25 percent. The bank cut it by a quarter percentage point in June.

The June rate cut came amid growing worries about negative effects from the government-led corporate restructuring in shipbuilding and shipping industries.

The government announced about 10 trillion won (8.8 billion U.S. dollars) in supplementary budget for the second half of this year on expectations that economic situations would be worse in the second half than in the first half due to the ongoing corporate restructuring.

The BOK sought to wait and see how the fiscal and monetary stimulus last month would affect the faltering economy, refraining from altering the policy rate.

Under the self-restructuring plan, South Korea's top three shipbuilders, including Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering, plan to reduce overcapacity by 20 percent and cut workforce by 30 percent by the end of 2018.

The jobless rate kept rising in the country's southeastern coastal region where main shipyards are located.

Despite the sluggish economy, it would be hard for the BOK to cut rates further on worries that foreign capital may flow out of the South Korean market following the Brexit, or British referendum to leave the European Union (EU). If the BOK cut rates further, foreign capital exodus may happen.

Though banks tightened standards to lend money to households, household debts continued to maintain a record-breaking trend. The already record-low interest rate is feared to increase such debts at a swift pace.

Household debts topped 1,200 trillion won (1.05 trillion U.S. dollars), keeping a record-breaking trend. Debts owed by households to banks increased 6.6 trillion won from a month earlier to 667.5 trillion won as of end-June. Endit