Roundup: S. Korea freezes interest rates at record low amid mixed signals

South Korea's central bank on Thursday froze interest rates at a record low to see the effect from the U.S. Federal Reserve's first rate hike in a year despite downside risks from the political turmoil at home.

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 an all-time low of 1.25 percent.

It was in line with market expectations as experts predicted the rate on hold amid mixed signals facing the Asia's No. 4 economy. The BOK refrained from altering borrowing costs for six months in a row.

According to a Korea Financial Investment Association (KFIA) survey of 200 fixed-income experts released before the rate-setting meeting, 98 percent forecast the rate freeze this month.

The BOK's rate freeze came hours after the Fed raised interest rates by a quarter percentage point to a range of 0.5 percent to 0.75 percent, the first increase since last December.

The Fed's rate hike was just the second since the 2008 global financial crisis led it to set its benchmark rate near zero, but the U.S. central bank indicated three rate hikes in 2017, up from two estimated three months earlier.

Severe pressure is forecast to be put on the BOK to end its prolonged low-rate policy on worries that a widening gap between interest rates of South Korea and the United States may cause a foreign capital exodus from the former.

The South Korean economy plunged into the devastating foreign exchange crisis in late 1997 when foreign funds flowed out of the country by the run.

The BOK had lowered the benchmark rate from 2.50 percent in July 2014 to the current 1.25 percent in June this year, increasing concerns about the bubble-forming in the real estate market.

Amid the record-low borrowing costs, household debts topped 1,300 trillion won (1.1 trillion U.S. dollars), keeping a record-breaking trend. Demand for mortgage loans surged as the government eased regulations on home-backed loans.

If the BOK lifts rates in accordance with higher U.S. borrowing costs, it would increase a debt-servicing burden for South Korean households. It would put the BOK in a deeper dilemma for its future rate-setting decisions.

The political turmoil, caused by the impeachment of President Park Geun-hye, boosted worries about weak private consumption and soft facility investment as uncertainties grew among consumers and companies about political and economic situations.

President Park was impeached last Friday in the 300-seat National Assembly, suspending the scandal-hit president from office immediately. Prime Minister Hwang Kyo-ahn will assume government control until the constitutional court rules on it up to 180 days.

If the two-thirds of the court's nine justices ratify the impeachment, an early presidential election should be held within 60 days under the local law. Endit