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BOK Keeps Key Rate Frozen at Record Low
Basic Basic Interest
BOK Keeps Key Rate Frozen at Record Low
  • By Jung Suk-yee
  • July 10, 2015, 01:45
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The monetary policy committee of the Bank of Korea decides to keep the historically lowest base rate at a meeting held at its headquarters in Seoul on July 9.
The monetary policy committee of the Bank of Korea decides to keep the historically lowest base rate at a meeting held at its headquarters in Seoul on July 9.

 

The record-low basic interest rate has been kept this month following the previous month.

The Bank of Korea (BOK) announced on July 9 that it has frozen the key interest rate at 1.5 percent for this month, as it was in June when the central bank cut it to a record low.

The base rate had been cut four times to see a total of a 1 percentage point decrease since August last year.

The decision is known to have come from the judgment that it is necessary to watch the effects of the base rate cut made last month to fend off demand contractions from the Middle East Respiratory Syndrome (MERS) outbreak and those of the strengthened fiscal supports of 22 trillion won (US$19.5 billion), including a revised supplementary budget of 11.8 trillion won (US$10.4 billion).  

Another reason for the decision was that the U.S. Fed would raise the base rate within this year, amid the lowest level resulting from the four cuts since the second half of last year.

Uncertainties in the global financial market are also increasing with the Greek crisis and China stock market plunge. Rapidly-increasing household debt is also said to have contributed to such a decision.

Even though there has been no serious out-flow of foreign money in spite of the base rate cuts, a U.S. base rate increase could flare up the variability and anxiety of the international financial market centered on emerging economies.

Household debt, which has already exceeded 1.100 quadrillion won (US$974 billion), are highly likely to be a detonator of the crisis when the shock of the U.S. interest rate hike hits the local financial market. Household debt has been showing a rapid increase of 7 to 8 billion won (US$6 to $7 million) per month due to the deregulations of mortgage loans and cuts of the base rate.