BOK to focus rate policy on curbing excessive borrowing

SEOUL, May 18 (Yonhap) -- The Bank of Korea (BOK) will manage its future monetary policy in such a way that it should not induce households and companies to borrow excessively, the central bank's chief said Wednesday. "(The BOK) needs to manage the rate policy in a way not to cause households or companies to rely on excessive borrowing," BOK Gov. Kim Choong-soo said in a seminar. "South Korea needs to continue to make efforts to beef up its economic fundamentals in a bid to keep stable growth while not being swayed from overseas shocks." His remarks are widely viewed as stressing the need to raise the interest rate in the face of inflationary pressure and growing household debts. Snowballing household debts became the source of headaches for Korean policymakers because rising interest rates will crimp households' capacities to service debts. But delaying a rate hike could also result in further growth of their indebtedness. Korean households have heavily borrowed by taking advantage of low borrowing costs, which were driven by the BOK's aggressive rate cuts aimed to fight the global financial turmoil. The BOK froze the key interest rate at 3 percent on Friday for the second straight month, saying that economic uncertainty such as unstable oil prices and the eurozone debt crisis persists even in the face of high inflation. It has raised the rate by a combined 1 percentage point since last July. The decision to leave the rate unchanged received criticism from the market as the BOK had given a muddled policy signal amid its repeated emphasis on keeping price stability. The BOK is expected to take baby steps toward policy tightening down the road, raising prospects that its pace of rate hikes will likely be slower than expected.