SEOUL: Household debts in South Korea continued its monthly surging trend in August due to the record- low borrowing costs, central bank data showed Tuesday.
Debts owed by households to deposit-taking institutions, including banks and non-bank deposit takers, increased 9.8 trillion won (8.5 billion U.S. dollars) in August from a month earlier, according to the Bank of Korea, the country’s central bank. It was only the second largest monthly increase to the record high of a 10.1 trillion expansion in April this year.
The surging trend came as the central bank lowered the benchmark interest rate to an all-time low of 1.5 percent in June after cutting it by a percentage point in March.
Some predicted a further rate cut as early as November as exports, which take up about half of the economy, fell for nine straight months through September.
Lower borrowing costs usually make the South Korean currency weaker to the U.S. dollar, helping boost exports. But, lower rates can cause lots of side effects like fast growth in household debts. Household debts extended by deposit-takers reached a record high of 773.1 trillion won as of end-August.
Mortgage loans jumped 6.7 trillion won in August from the previous month due to stronger home transactions amid low borrowing costs. Credit loans also increased 3.1 trillion won in August due to demand for funds necessary for summer vacation.
