Continued monetary easing causes asset price hike: BOK
The continued monetary easing policy has resulted in rapid asset price gains especially in the real estate sector, the country’s central bank said, stressing the need for the “normalization of monetary policy.”
“Assuming that the Korean economy will be on a continuous healthy growth trajectory, then it’s necessary to normalize monetary easing in an orderly fashion at the right time,” Bank of Korea (BOK) Deputy Governor Park Jong-seok told reporters in a press briefing after the release of its regular financial stability report, Tuesday.
The deputy governor didn’t directly mention the specific timing of the central bank’s benchmark rate increases. However, the remarks are seen by many as the BOK’s affirmative stance toward hiking the rate.
“The continued monetary easing resulted in rapid asset price gains especially in the real estate sector. While accommodative easing is a factor as the policy cuts the burden in terms of paying interest rates for economic constituents, continued improvement of the real economy and rising (consumer) prices means steps for the normalization of the monetary easing policy would be needed but must be carried out in an orderly fashion,” the BOK deputy governor said.
Tuesday’s BOK report highlighted the possibility that the deepening financial imbalance in Korea would hurt the economy as an external shock could cause a large-scale correction in the domestic asset market, which is already engulfed with a high level of deleveraging of debt. The BOK report also stressed the burden of debt repayment is growing among households as they are still struggling to improve their incomes.
“It’s fair to say that the BOK is asked to take on issues regarding economic imbalance more actively than before, because of the revised-up growth forecasts,” Park said. The BOK cut its base rate by 75 basis points last year, and it has kept it at a historically low level of 0.5 percent since May 2020.
Specifically, the ratio of the BOK’s debt-to-disposable income reached 171.5 percent by the end of the first quarter of this year, a year-on-year jump of more than 11 percentage points, according to the report.
Economists and stock market analysts are expecting the BOK to start raising its base rate in August at the earliest, as the bank is becoming more confident of the country’s economic growth.
Regarding any latest updates to its position on crypto-assets, the BOK hasn’t changed its hawkish stance toward cryptocurrencies as the report said it’s difficult to find the “appropriate rationale” to justify cryptocurrencies’ recent rally during the COVID-19 pandemic.
Continued improvement of the real economy means steps for the normalization of the monetary easing policy would be needed.