Bank of Korea Holds Interest Rate Steady Amid Ongoing Real Estate Concerns
On the 23rd, the Bank of Korea held a monetary policy meeting of the Monetary Policy Committee and decided to freeze the benchmark interest rate at 2.50% per annum, marking the third consecutive month of holding rates steady since July and August. The decision comes amid ongoing instability in the real estate market, where there is a clear judgment that lowering interest rates could further fuel rising house prices. However, Bank of Korea Governor Lee Chang-yong commented in a press conference following the meeting that the risks associated with household debt have significantly diminished. He noted that even though it cannot be said that stability will be achieved solely by a decline in house prices, a sign of a slowdown in the upward trend will be necessary for resuming rate cuts. Analysts in the market interpreted this as leaving open the possibility of a rate cut next month.
The Bank of Korea has maintained the interest rate at 2.50% for six months following rate cuts of 0.25 percentage points each in February and May. While the economic outlook is poor and inflation remains stable, the overheating of the real estate market appears to be holding back potential interest rate reductions.
However, Governor Lees remarks during the press conference were viewed as somewhat dovish regarding financial stability. He suggested that even if house prices do not enter a downward trend, a slowdown in the rate of price increases could lead to the resumption of rate cuts.
Governor Lee emphasized that "it is not possible to perfectly control real estate prices with interest rates" and added that simply waiting for prices to stabilize while keeping rates unchanged is not an option. He stated, "We also have to consider the economic conditions." He further mentioned that while he would assess whether lowering rates could lead to further overheating in the real estate market, it is equally important to evaluate the risk of a significantly worsened economy if rates are not cut.
He concluded by stating that even if next years growth rate rises to the level of potential growth, the bank would need to consider various factors in its monetary policy decisions moving forward.
The Bank of Korea has maintained the interest rate at 2.50% for six months following rate cuts of 0.25 percentage points each in February and May. While the economic outlook is poor and inflation remains stable, the overheating of the real estate market appears to be holding back potential interest rate reductions.
However, Governor Lees remarks during the press conference were viewed as somewhat dovish regarding financial stability. He suggested that even if house prices do not enter a downward trend, a slowdown in the rate of price increases could lead to the resumption of rate cuts.
Governor Lee emphasized that "it is not possible to perfectly control real estate prices with interest rates" and added that simply waiting for prices to stabilize while keeping rates unchanged is not an option. He stated, "We also have to consider the economic conditions." He further mentioned that while he would assess whether lowering rates could lead to further overheating in the real estate market, it is equally important to evaluate the risk of a significantly worsened economy if rates are not cut.
He concluded by stating that even if next years growth rate rises to the level of potential growth, the bank would need to consider various factors in its monetary policy decisions moving forward.
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