S. Korea’s central bank to review timing for policy rate cut

SEOUL, Sept. 12 (Xinhua) — South Korea’s central bank said on Thursday that it will review the timing for a policy rate cut while maintaining a tightening stance in its monetary policy.
The Bank of Korea (BOK) said in its monetary policy report that the timing for the benchmark interest rate cut will be reviewed while closely monitoring the trade-offs among policy variables such as inflation, economic growth and financial stability amid continued tightening stance in monetary policy.
The central bank had left its key rate unchanged at 3.50 percent since January 2023, after raising it by 3.0 percentage points for the past one and a half years.
Expectations ran high for the BOK to lower its policy rate by the end of this year following an expected rate cut in the United States as early as in September.
However, the BOK’s rate cut could be restricted amid uncertainties over massive household debts and high housing prices.
The BOK said the Asian economy would improve modestly amid greater confidence that inflation would converge at the target level, noting that uncertainties lingered over higher housing prices in the metropolitan area, household debt growth, and volatility in the foreign exchange market.
Consumer prices rose 2.0 percent in August from a year earlier, lower than an increase of 2.6 percent in the previous month and hovering below 3 percent for the fifth consecutive month.
It marked the slowest gain in almost three and a half years since March 2021, but headline inflation continued to surpass the BOK’s mid-term inflation target of 2 percent.
Real gross domestic product (GDP), adjusted for inflation, retreated 0.2 percent in the second quarter compared to the previous quarter after soaring 1.3 percent in the first quarter.
Reflecting the second-quarter GDP contraction, the central bank revised down this year’s economic growth outlook by 0.1 percentage points to 2.4 percent in August.
The BOK noted that housing prices in the Seoul metropolitan area kept an upward trend while the ratio of household debts to GDP was highly likely to remain at high levels.
Nominal housing prices in the capital Seoul recently recovered to 90 percent of their highs in 2021, while apartment prices in some districts of Seoul rose above their previous highs, according to BOK data.
After hitting a peak of 99.3 percent in the third quarter of 2021, the ratio of household debts to GDP declined to 92.1 percent in the first quarter of 2024, but the ratio was forecast to rebound by the end of this year.
Debt owed by households to deposit-taking banks kept growing for the fifth consecutive month in August, affected by a record expansion in mortgage loans.
The BOK noted that the high household debt ratio could serve as a structural factor restricting private consumption, adding that uncertainties remained big over housing prices and household debts. ■