(Bloomberg) -- Bank of Korea Governor Rhee Chang-yong on Tuesday characterized last week’s decision to hold the key interest rate as a wake-up call over “a vicious cycle” of real estate frenzy and household debt feeding off each other.
“This decision reflected the hope to raise an alarm at least once that this vicious cycle is not desirable,” Rhee said, according to a transcript of his speech at an academic symposium in Seoul.
On Aug. 22 Rhee and his fellow board members unanimously decided to extend the BOK’s record-long holding pattern. They maintained their concerns over rising housing prices in Seoul, and its potential to accelerate increases in household debt. Most economists now expect the central bank to go ahead with a cut in October, while Rhee has remained cautious about hinting at a specific timing.
Household debt has been among Rhee’s top concerns since he took office in 2022. South Korea has one of the highest private debt-to-economy ratios in the developed world, with most people holding the bulk of their wealth in real estate.
In his speech on Tuesday, Rhee blamed the “endless demand” for Seoul homes on the intense competition among South Korean parents to send their kids to a top university. The zeal has consolidated a “myth of invincibility” around Gangnam properties in particular, making it difficult for policymakers to rein in property prices, he said.
Since the BOK sounded an alarm over housing prices in July, government officials have sought to tighten mortgage-lending rules while pledging a boost in housing supply. Meanwhile, consumer inflation has cooled enough to give the central bank more confidence that prices will remain under control, allowing the authorities to shift more focus on economic concerns.
A rate cut too late poses the risk of delaying a recovery in consumption and weakening growth momentum, Rhee also said in his speech. He acknowledged some public views opposing the hold decision last week. There should still be more reflection on how the debt and property woes had grown serious enough to prompt the BOK to hesitate cutting rates, he said.
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