BOK Freezes Interest Rates for Now

Debtors were granted another reprieve on Thursday as the Bank of Korea kept the base rate flat at 0.5 percent for the ninth month.

The central bank's monetary policy committee said the rate freeze was based on rising uncertainties posed by a renewed surge in coronavirus infections despite signs of a recovery fueled by rising exports.

There have been mounting expectations of a rate hike since May, but a sudden resurgence in COVID-19 infections put the brakes on it.

But unlike in previous meetings, where the decision was unanimous, one member voted for a rate hike, and expectations remain high that interest rates will rise later this year.

Bank of Korea Governor Lee Ju-yeol bangs the gavel in a monetary meeting in Seoul on Thursday. /Yonhap

BOK Governor Lee Ju-yeol told reporters, "Private consumption is expected to be negatively affected temporarily" but added, "The recovery momentum will not be affected severely if lockdown and increased vaccinations stem the rise in infections and the government's supplementary budget makes an impact."

The BOK predicted that exports will keep rising and foreign investment grow due to the global recovery. It kept its growth forecast for this year at around four percent.

Lee stressed the need to raise the base rate at some point citing real estate and other asset bubbles and financial imbalances. The BOK is worried about soaring housing prices and household debt surpassing W1.9 quadrillion (US$1=W1,141).

"If monetary easing policies are maintained too long when macroeconomic conditions are improving, the overheated real estate market and high household debts will worsen financial imbalances and weaken the basis for growth over the mid to long term," Lee said. "I believe the time has come to consider whether it would be proper to adjust the degree of monetary easing at the next meeting" in August.