South Korea raises key interest rate for first time since November 2017

The Bank of Korea on Friday raised its key interest rate for the first time since November last year, ending a year-long hiatus, said sources.

Korea’s central bank raised the rate to cool the overheated housing price hike and to curb the soaring levels of household debt, which have reached $1.15 trillion, the sources said.

BoK Governor Lee Ju-yeol and six other monetary policy board members decided to flagged-off the seven-day repurchase rate by a quarter point to 1.75 per cent from 1.50 per cent, it said.

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“Outstanding household debts at the world’s 11^th-largest economy hit a record 1,514 trillion won ($1.3 trillion) as of late September, while housing prices have surged, especially in the capital Seoul and its suburb areas,” according to sources report.

The widening spread between the Korean and US’s interest rates also encouraged the BOK to lift hike rates, it said.

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.

Housing sales prices in capital 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.

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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.

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

According to sources, South Korean bank joins the central banks of Indonesia and Philippines in raising interest rates in recent weeks after US Federal Reserve’s rate-hike cycle weigh on Asian currencies.

(With inputs from agencies)