SEOUL, Oct. 23 — South Korea’s central bank on Thursday froze its policy rate for the third successive time amid lingering uncertainties such as an increased exchange rate volatility and higher housing prices. Bank of Korea (BOK) Governor Rhee Chang-yong and other monetary policymakers decided to leave the benchmark seven-day repurchase rate unchanged at 2.50 percent. It was in line with market expectations. According to the Korea Financial Investment Association’s poll of 100 fixed-income experts, 85 percent predicted the rate on hold this month. The BOK made the rate freeze decision in July, August and October after cutting the key rate by 25 basis points in February and May this year and in October and November last year. The consecutive rate freeze was due mainly to the widened exchange rate fluctuations and the higher home prices. The average won versus U.S. dollar exchange rate advanced to 1,391.83 won per dollar in September from 1,389.66 won in August. The rate topped 1,400 won earlier this month. The new government of President Lee Jae-myung, who took office in early June, unveiled a set of measures to curb housing price increases, but demand to purchase new homes with borrowed money remained high, especially in Seoul. Debt owed by households to deposit-taking banks totaled 1,170.2 trillion won (821.1 billion U.S. dollars) at the end of September, up 2.0 trillion won (1.4 billion dollars) from a month earlier. It continued to grow for the eighth straight month since February on the back of solid demand for mortgage loans. The BOK said in a statement that it was necessary to further monitor financial stability conditions, such as the effect of real estate market stabilization measures on the housing market in Seoul and its surrounding areas, and on household debt, as well as exchange rate volatility. Pressure eased on the central bank to lower rates further thanks to a boom in semiconductor exports and a recovery in consumer sentiment, driven by the stock market rally. Export, which accounts for about half of the export-driven economy, jumped 12.7 percent from a year earlier to hit a record monthly high of 65.95 billion U.S. dollars in September. Chip export surged 22.0 percent to reach a new high of 16.61 billion dollars last month. The composite consumer sentiment index (CCSI), which gauges the sentiment of consumers over the economic situation, fell 1.3 points over the month to 110.1 in September, but it hovered above a long-term average of 100, hinting that optimists outnumbered pessimists. It was affected by the stock market rally. The benchmark KOSPI topped the previous record high in about four years and two months in September, extending its record-breaking run in October. The BOK noted that with inflation remaining stable, economic growth continued its improvement trend, affected by consumption and exports, though there was still high uncertainty over the economic growth outlook. Concerns lessened over a gap between the South Korean and the U.S. interest rates amid expectations for additional rate cuts in the United States. The U.S. Federal Reserve reduced its target range for the federal funds rate by a quarter percentage point to 4.00-4.25 percent in September, narrowing the rate difference with South Korea to 1.75 percentage points. Expectations ran high for the Fed’s further rate decreases in October and November.
Xinhua
