BOK keeps rates steady amid inflation, rising household debt

The Bank of Korea Gov. Rhee Chang-yong at the Monetary Policy Board meeting held at the bank headquarters in central Seoul on Thursday. [BOK]

The Bank of Korea (BOK) kept the policy rates unchanged at 3.50 percent on Thursday for the seventh consecutive meeting.

It was a widely expected move amid high inflation and rapid growth of household debt.

According to the Korea Financial Investment Association (Kofia), 96 percent of bond experts, including analysts, expected the BOK’s Monetary Policy Board to freeze the rate, up from a 90 percent estimation ahead of the previous rate-setting meeting in October. The remaining 3 percent projected a rate cut, while the 1 percent expected a rate increase in the policy rate.

A total of 100 people from 51 institutions took part in the survey for five days through Nov. 22.

The bond experts cited a surge in household debt as a reason for their projection.

“The possibility of a change in monetary policy direction is growing due to the slowing inflation in the United States, but reversed inflation growth between Korea and the United States and a surge in domestic household debt raised expectations for [the BOK] to freeze the rate,” said the Kofia in a statement.

Korea’s consumer price grew 3.8 percent on year in October, higher than the 3.2 percent in the United States over the same period.

Korea’s outstanding household credit reached 1,875.6 trillion won ($1.46 trillion) at the end of September, up 14.3 trillion won from three months earlier. The third quarter rise was a record-high gain, despite consistently high interest rates.

“The Monetary Policy Board left open the chance to raise the rates in October, citing geopolitical risks” involving Israel and Hamas, said analyst Ahn Ye-ha from Kiwoom Securities in a report on Friday. “But upholding the cause to raise rates additionally has weakened as global oil price stabilized.”

West Texas Intermediate Crude Oil, which was trading at almost $90 per barrel last month, is currently priced in the mid-$70 range.

One of the seven Monetary Policy Board members said last month that the board should be flexible in either raising or lowering the policy rate considering the uncertainties.

The BOK’s Thursday rate-setting meeting was the last one scheduled for this year.

The next Federal Open Market Committee meeting will take place from Dec. 12.

The Fed held its interest rates unchanged in 5.25-5.50 percent range in its last meeting in November.

BY JIN MIN-JI [jin.minji@joongang.co.kr]