South Korea leaves interest rate unchanged despite Fed decision

South Korea has been struggling with soaring household debt and rising youth unemployment at a time when its economy is expanding at the slowest pace in recent years.
South Korea has been struggling with soaring household debt and rising youth unemployment at a time when its economy is expanding at the slowest pace in recent years.PHOTO: AFP

SEOUL (AFP) - South Korea held its key interest rate unchanged on Thursday (Dec 15), despite an earlier US hike, as an ongoing political crisis tightened the reins on an already-slowing economy.

In a move widely expected by analysts, the central Bank of Korea held its benchmark rate at its record-low of 1.25 per cent for the sixth straight month.

South Korea has been struggling with soaring household debt and rising youth unemployment at a time when its economy is expanding at the slowest pace in recent years.

The decision came just hours after the US Federal Reserve increased its borrowing cost for the first time this year to 0.75 per cent, The rate hike, coupled with uncertainties posed by the incoming Donald Trump administration, could further cloud South Korea's economic prospects.

Following a meeting held shortly after the US Fed decision, South Korea's finance ministry said the rate hike could "increase volatility" in the South Korean financial and foreign exchange markets.

Domestic markets are already under pressure because of political uncertainty triggered by a snowballing corruption scandal that led to parliament voting to impeach President Park Geun Hye last week.