South Korea keeps interest rate at record low 1.5%

GMT 07:59 2016 Thursday ,10 March

Arab Today, arab today South Korea keeps interest rate at record low 1.5%

South Korea's exports have dropped for 14 consecutive months on-year
Seoul - AFP

South Korea's central bank on Thursday kept its key interest rate unchanged at record lows, refusing to cut further as it looks to nurture growth in the anaemic economy while also preventing a flight of capital from the country.

While the decision to keep borrowing costs at 1.5 percent for a ninth-straight month were expected, the BOK has faced growing calls for another reduction with exports tumbling as economic woes in key market China show no sign of abating.

South Korea's exports have fallen for 14 consecutive months since the start of last year, plunging 12.2 percent on-year in February alone.

"The trend of improvement in the Korean economy is weakening, due mainly to continuing sluggishness of exports," the central bank said in a statement.

But there are concerns that a further rate cut would spark a fresh exodus of foreign funds, putting additional pressure on, bonds, shares and the Korean won.

It would also embolden already highly indebted households and companies to take more loans, putting them further debt into and worsening one of South Korea's most acute domestic economic headaches.

Collective household debt stood at a record high of 1.2 trillion won ($995 billion) at the end of December.

"Household debts have reached a high level indeed, and it's a constant source of our concern to curb them," governor Lee Ju-Yeol told reporters.

Lee said he was sceptical that the benefits of any further interest rate cut would outweigh the potential disadvantages.

"I don't think the current rates are restraining the real economy," he said.


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