SEOUL, May 28 (Xinhua) -- South Korea's central bank on Thursday froze its policy rate for an eighth straight time, while indicating a rate hike on the back of fast economic growth, rising household debt, higher exchange rate volatility and inflationary pressure.
Newly appointed Bank of Korea (BOK) Governor Shin Hyun-song and other monetary policymakers decided to leave the benchmark seven-day repurchase rate unchanged at 2.50 percent.
Two policymakers dissented from the rate freeze, advocating a policy rate increase by 25 basis points.
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 on hold this month.
The central bank made the rate freeze decision for an eighth consecutive time after cutting the key rate by 25 basis points in February and May of 2025 and in October and November of 2024.
The BOK shifted its monetary policy stance from easing to tightening due to rapid growth, growing household loan, a high South Korean won versus the U.S. dollar exchange rate and inflationary pressure.
Governor Shin told a press conference that it would be appropriate to raise the interest rate at the right time given the factors including the improved economic growth, the exchange rate volatility, household debt risks and inflation expected to stay above the BOK's target for quite some time.
Shin explained that the central bank will decide on the timing and pace of rate hikes based on the upcoming data.
The Asian country's seasonally-adjusted real gross domestic product (GDP), modified for inflation, soared 1.7 percent in the January-March quarter compared to the previous quarter, marking the fastest increase in five and a half years since the third quarter of 2020.
Export, which accounts for about half of the economy, expanded 5.1 percent in the first quarter from three months earlier after reducing 1.7 percent in the previous quarter.
The outbound shipment topped 80 billion dollars for a second successive month in April, driven by surging demand for semiconductors of which the export skyrocketed 173.5 percent in April from a year earlier.
Debt owed by households to deposit-taking banks totaled 1,174.9 trillion won (780.1 billion U.S. dollars) at the end of April, up 2.1 trillion won (1.4 billion dollars) from a month earlier.
It was faster than an expansion of 0.5 trillion won (332.0 million dollars) in the previous month, resulting from higher home prices in the Seoul metropolitan area.
The domestic real estate market fluctuated in recent months, with the number of apartment transactions across the country reaching 48,000 in January, 41,000 in February and 49,000 in March.
Volatility remained in the won versus dollar exchange rate, which retreated to 1,483.3 won per dollar at the end of April from 1,530.1 won tallied a month earlier before climbing close to the 1,520 won level earlier this month amid a foreign selling spree in the local stock market.
The U.S. Federal Reserve froze its target range for the federal funds rate at 3.50-3.75 percent in April, keeping the rate difference with South Korea at 1.25 percentage points.
Inflationary pressure intensified amid the lingering Middle East tensions. The consumer price index (CPI) gained 2.6 percent in April from a year earlier, marking the fastest growth since July 2024.
Price for oil products jumped 21.9 percent last month, raising the overall inflation by 0.84 percentage points. It was the fastest in almost four years since July 2022. ■