The Bank of Korea maintained the benchmark interest rate at 1.25% on December 15. The most recent adjustment, a 0.25 percentage point cut, had been in June this year. That day, the Federal Reserve raised its benchmark interest rate from a range of 0.25 to 0.5 percent to a range of 0.5 to 0.75 percent. The rate is expected to be raised three times next year.
The Bank of Korea is concerned about the probability of capital outflow that can follow the interest rate hike by the Fed. Another concern is the household debt that has exceeded 1,300 trillion won to further restrict monetary policy. In November this year alone, the household loans in the banking sector increased by no less than 8.8 trillion won, showing the highest rate of increase for the same month since 2008. It is very hard for the Bank of Korea to lower the base rate with the household debt snowballing. Besides, an upward adjustment is no easy choice in view of the current economic recession.
In the meantime, an increasing number of experts are pointing out that the South Korean economy would show a negative growth rate in the fourth quarter of this year due to a slow export recovery and the repercussions of the Choi Sun-sil scandal. Its growth rate for next year is estimated to be less than 3%, too.
Under the circumstances, the central bank of South Korea is likely to maintain the base rate for the time being. Its meeting for interest rate determination, which has been held each month, is scheduled to be held eight times a year from next year. The first meeting for next year is scheduled for January 13.