South Korea's central bank on Thursday froze interest rates at a record low to see the effect from the U.S. Federal Reserve's first rate hike in a year.
Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members decided to keep the benchmark seven-day repurchase rate on hold at an all-time low of 1.25 percent. It was in line with market expectations as experts predicted the rate on hold amid mixed signals facing the Asia's No. 4 economy.
The BOK refrained from altering borrowing costs for six months in a row. According to a Korea Financial Investment Association (KFIA) survey of 200 fixed-income experts released before the rate-setting meeting, 98 percent forecast the rate freeze this month.
The BOK's rate freeze came hours after the Fed raised interest rates by a quarter percentage point to a range of 0.5 percent to 0.75 percent, the first increase since last December. The Fed's rate hike was just the second since the 2008 global financial crisis led it to set its benchmark rate near zero, but the U.S. central bank indicated three rate hikes in 2017, up from two estimated three months earlier. Severe pressure is forecast to be put on the BOK to end its prolonged low-rate policy on worries that a widening gap between interest rates of South Korea and the United States may cause a foreign capital exodus from the former.
The South Korean economy plunged into the devastating foreign exchange crisis in late 1997 when foreign funds flowed out of the country by the run. The BOK had lowered the benchmark borrowing costs from 2.50 percent in July 2014 to the current 1.25 percent in June this year, increasing concerns about the bubble-forming in the real estate market.
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