SEOUL, July 11 (Xinhua) -- South Korea's central bank on Thursday froze its policy rate for the 12th successive time amid lingering uncertainty over massive household debt and the weak domestic currency that offset lower inflation.
Bank of Korea (BOK) Governor Rhee Chang-yong and other monetary policymakers decided to leave the benchmark seven-day repurchase rate unchanged at 3.50 percent.
It was in line with market expectations. According to the Korea Financial Investment Association's poll of 100 fixed-income experts, 99 percent predicted the rate freeze this month.
The BOK put the rate on hold in January, February, April and May this year and seven times last year after delivering policy rate hikes by 3.0 percentage points between August 2021 and January 2023.
The consecutive rate freeze came amid the remaining uncertainty about household debt and the weak local currency that counterbalanced slower headline inflation.
Consumer prices rose 2.4 percent in June from a year earlier, hovering below 3 percent for the third straight month, but the consumer price inflation continued to top the BOK's mid-term inflation target of 2 percent.
The headline inflation had been on the decline after peaking at 6.3 percent in July 2022.
Inflationary pressure remained in recent months on the back of the spike in agricultural products price, which soared 13.3 percent in June on a yearly basis. It was lower than a surge of 19.0 percent in May.
The BOK said in a statement that inflation continued its slowing trend owing to the effects of a sustained restrictive monetary policy stance, expecting the inflation to keep slowing due to the modest consumption recovery and the base effect from the sharp rises in global oil and agricultural product prices last year.
Despite the slower inflation, concerns lingered about the prolonged weakness of the South Korean currency against the U.S. dollar.
The won/dollar exchange rate traded high at 1,376.7 won per dollar at the end of June, far higher than 1,288.0 won tallied six months earlier.
The chronically weak local currency discouraged the BOK from cutting the key rate early as the earlier-than-forecast rate cuts could lead the foreign funds to flow out of the South Korean financial market.
Worry remained about a broad gap between the South Korean and the U.S. interest rates.
The U.S. Federal Reserve froze its target range for the federal funds rate at 5.25-5.50 percent for the sixth consecutive time in early May.
Higher borrowing costs increased the debt-servicing burden for households struggling with record-high debts that would negatively influence domestic consumer spending.
Debt owed by households to deposit-taking banks gained 6.0 trillion won (4.3 billion U.S. dollars) in June compared to the previous month, continuing to grow for the third consecutive month.
The BOK noted that the domestic economic growth temporarily weakened in the second quarter due to the slump in domestic demand while exports continued to improve amid the slower increase in employment.
The central bank forecast that the domestic economy would continue the moderate growth with a gradual recovery in consumption and an expansion in exports. Enditem
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