SEOUL, Sept. 12 (Yonhap) — South Korea’s central bank said Thursday it will gauge the timing for a potential rate cut amid woes over high household debts and moderating inflation.
In its latest monetary policy report, the Bank of Korea (BOK) said the country’s inflation is stepping closer than earlier toward its target level and the economic growth will modestly improve.
But it said home prices in the greater Seoul area and household debts have continued to rise, and it also needs to further monitor the currency market’s volatility.
“Given these trends, the central bank will maintain its restrictive stance on its monetary policy and will gauge the timing for a rate cut while monitoring various factors, such as inflation, growth and financial stability,” it said.
The central bank said it is the critical time for the proper mix of monetary and fiscal policies amid increased uncertainties.
South Korea’s inflation slowed to the lowest level in nearly 3 1/2 years in August on easing prices of farm produce and global oil.
In this file photo, people shop at a major discount chain store in Seoul on Aug. 29, 2024. (Yonhap)
Consumer prices, a key gauge of inflation, rose 2 percent on-year last month, slowing from the 2.6 percent on-year rise a month earlier, marking the slowest increase since March 2021, when consumer prices grew 1.9 percent.
It was also the fifth consecutive month that the price growth stayed below 3 percent.
The central bank’s mid-term inflation rate is set at 2 percent.
Inflation rose 3.6 percent on-year last year, slowing from a 5.1 percent gain in 2022. For the year, the central bank expects inflation to stay at 2.5 percent.
Last month, the BOK kept interest rates unchanged at 3.5 percent, the highest level in about 16 years, for the 13th straight time, and Gov. Rhee Chang-yong said the decision was made in consideration of rising home prices and surging household debts despite weak domestic demand.
Some economists forecast a pivot around October, though Lee said the BOK puts a focus on how to stabilize prices and ensure financial stability at the same time and it will take into consideration various economic indicators.
The central bank delivered seven consecutive rate hikes from April 2022 to January 2023.
Earlier this month, Gov. Rhee also said the time has come to “sufficiently consider” a rate cut as the nation’s consumer inflation cooled, adding the central bank would review an “appropriate timing” for a rate cut, in his strongest signal yet about a policy pivot.
As to the economic recovery, the central bank said private spending, which has been lackluster amid high interest rates and debt burdens, will improve, backed by rising wages and a progress in disinflation, although structural problems, such as low birth rates and the fast aging trend, may drag on.
Last year, the economy grew 1.4 percent. But its expansion slowed from the previous year’s 2.6 percent gain and the 4.1 percent advance in 2021.
For the year, the central bank forecast a 2.4 percent gain.
A signboard in Seoul shows information about a bank’s home-back loan programs, in this file photo taken Sept. 1, 2024. (Yonhap)
Regarding household debt, the central bank said housing prices in the greater Seoul region have continued to rise and household debts are highly likely to maintain high levels.
Soaring household debt has been a nagging concern for policymakers here as high indebtedness is feared to curb a recovery in domestic demand.
Household loans extended by banks in South Korea rose for a fifth straight month in August, led by a record increase in mortgages, according to central bank data.
Banks’ household loans rose by 9.3 trillion won (US$6.9 billion) in August from a month earlier, marking a sharp acceleration from a 5.5 trillion-won gain in July and the highest on-month increase in 37 months.
Banks’ home-backed loans added 8.2 trillion won from a month earlier to 890.6 trillion won in August, marking the highest on-month increase in the country’s history.
sam@yna.co.kr
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