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South Korea's household debt hits new record high

South Korea's household debt rose to a record last year as consumers borrowed to buy houses and spent more on credit cards, adding to concern that consumption may weaken.

Household credit, the sum of household loans and credit card installments, climbed to 630.7 trillion won (US$658 billion) at the end of last year from 582 trillion won a year earlier, the Bank of Korea said in Seoul yesterday.

The central bank raised borrowing costs to a six-year high of 5 percent last year to control inflation and curb loan demand. Rising debt, coupled with high inflation, could hurt mid and low-income debtors, such as mortgage borrowers.

"The problem is there are more rich than poor," said Lee Sang-jae, an economist at Hyundai Securities Co in Seoul. "You don't have to worry about debt if you are rich."

Some economists say the increase in household debt may have only a limited effect on spending as people borrowed to buy property rather than consumer goods.

"Korean households borrowed more primarily to increase their assets, most likely real estate, rather than to consume," said Kwon Goo-hoon, an economist at Goldman Sachs Group Inc in Seoul.

South Korea's producer prices rose at the fastest pace in more than three years last month, the latest sign inflation is accelerating, a separate report showed yesterday.

The Bank of Korea last week kept its key interest rate unchanged as it gauges the risks to inflation and growth.
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