S. Korea keeps key rate steady at 2.5% in amid rising household debts

We start with the Bank of Korea's decision to keep its rate unchanged at 2-point-5 percent amid a host of concerns both at home and abroad.

Our correspondent Moon Ji-young reports.

As widely expected, South Korea's central bank has held its benchmark interest rate steady at two-point-five percent.

The Bank of Korea announced the decision on Thursday following the fifth Monetary Policy Committee meeting of the year, taking a break from a rate-cutting cycle after a cut of 25 basis points in May.

"The domestic economy is expected to experience continued low growth for some time, while inflation remains on a stable trajectory, and there is considerable uncertainty related to trade negotiations. However, given the significant rise in capital area housing prices and household debt, coupled with the need to assess recent debt measures, it was deemed appropriate to maintain the current policy rate"

Rhee also highlighted that it is necessary to cool expectations for a rate cut to prevent a rapid increase in housing prices in the greater Seoul area and to better manage household debt.

According to one expert, housing prices have been rising, especially in the main capital area.

" the rising inflation in apartment price, especially in the Seoul Gangnam area, it, which has been showing more than 10% year-over-year of our rate of increase and that is, I think almost the highest in almost 20 years except for 2017 and 2018."

In response, the government last month implemented stricter mortgage regulations, capping mortgage loans for home purchases in the capital region and suspending home-backed loans for multi-homeowners.

Notably, the rate-freeze decision was unanimous. However, four out of six board members voiced the need for further rate cuts in the next three months, factoring in tariff negotiations.

Regarding the future rate outlook, an expert said:

"Though not yet disbursed, supplementary budget funds are expected to make an impact in August. This increases the likelihood of a rate cut at the August meeting."

Conversely, the other two members advocated for maintaining the rate, citing the record-high 2-percentage-point key rate gap that currently exists between South Korea and the U.S.

The central bank predicts consumption to gradually recover, driven by the implementation of the supplementary budget as well as improving economic sentiment thanks to eased political uncertainty.

Governor Rhee said he will take into consideration the effects of the extra budget once fully implemented in August.

Meanwhile, U.S. tariff impositions pose great uncertainty on export prospects.

The central bank emphasized that the outcomes of trade talks, especially regarding reciprocal tariffs on South Korea and specific items like semiconductors, will critically shape the country's export and growth paths.

"The Bank of Korea said it will maintain its accommodative monetary policy stance, closely monitoring domestic and external conditions before deciding on the timing of further rate cuts. Moon Ji-young, Arirang News."