Concerns rise over South Korea household debt on US rate hike  
There is growing concern that the US Federal Reserve's interest rate hike - with more expected in 2017 - will trigger a time bomb ticking in South Korea's record levels of household debt. The fear is that servicing debt burdens will lead to less household spending, companies will cut investment further and exports will continue to fall, resulting in weaker jobless growth for the economy. Without effective policy tools to steer the country out of the situation, the country's central bank and government are left to wait to see how US monetary policy develops under the incoming Trump administration.


BOK stuck in bind between slowdown, US Fed's rate hike



By Park Hyong-ki





Bank of Korea Governor Lee Ju-yeol checks key data on his laptop before holding the central bank's monetary policy meeting in Seoul, Thursday.

/ Korea Times U.S. Federal Reserve Chair Janet Yellen speaks at a press conference after announcing that the Federal Reserve will raise interest rates in Washington, Wednesday. This is only the second interest rate increase since June 2006.

/ EPA-Yonhap

The U.S. Federal Reserve's rate hike and warnings of more hikes next year are heightening concerns that the upward rate spiral might light the fuse of the record household debt bomb here.

The Fed's tightening of its monetary policy could throw the nation into a more vicious cycle where households spend less due to their growing burden of debt payment, companies slash their investment further, and exports continue to fall on weaker global demand, leaving the economy mired in weaker, jobless growth.

The Bank of Korea (BOK) kept its key rate unchanged at 1.25 percent for this month, Thursday, after the U.S. Fed raised its rate by 25 basis points to 0.5-0.75 percent. The Fed said it will carry out further rate hikes — up to three — next year.

BOK Governor Lee Ju-yeol said the central bank will put a priority on risk management amid growing internal and external uncertainties.

"We've decided to keep the key rate unchanged due to uncertainty, currency volatility and the household debt," BOK Governor Lee told the press. "It is important to manage risks as financial instability would affect growth and inflation."

The central bank would also be reluctant to raise its interest rate following that of the Federal Reserve as that would further negatively affect the country's household debt, he said.

Lee said a series of steps led by the government to contain snowballing household debt, which hit 1,300 trillion won ($1.13 trillion), have failed to keep the lid on the debt growth.