Central Bank Freezes Interest Rates

The Bank of Korea froze the benchmark interest rate at 3.5 percent on Thursday after hiking it seven times since last April.

The central bank seems to have decided to slam on the brakes to prevent a full-blown recession amid the economic slowdown and declining real estate prices.

It also considered the sky-high debt burden on households created by the investment craze and home-buying spree at a time of rock bottom interest rates during the coronavirus pandemic.

But this means that the interest rate gap between Korea and the U.S. will widen further as the Fed is likely to keep increasing the key rate, which is already at 4.75 percent and expected to rise to 5.5 percent in the first half of this year.

This could lead to a capital outflow from Korea as investors cast around for better returns.

Meanwhile, the BOK slashed Korea's growth rate forecast for this year by 0.1 percentage point to 1.6 percent in view of the country’s dependence on exports amid the global economic slowdown.