Economists are split on whether the BoK will proceed with a policy pivot next month or in November. — Bloomberg
Seoul: A policy easing by the central bank would likely provide a much-needed boost to South Korea’s housing markets outside of Seoul, while demand from deep-pocketed consumers in the capital should largely be unaffected by marginal rate moves, the country’s land minister says.
“People who are buying homes in Seoul will not be so sensitive to rates and these are people with big pockets,” Land, Infrastructure and Transport Minister Park Sang-woo said in an interview with Bloomberg on Tuesday.
A rate cut “could on the contrary help homes remaining unsold in provincial areas”, he said. “Regional economies further away have a greater tendency to rely on construction.”
The Bank of Korea (BoK) last month extended its record-long holding pattern, keeping the benchmark rate unchanged at 3.5%, a level it calls restrictive, on concerns that reducing it could exacerbate financial imbalances by fuelling home prices and mortgage loans in the greater Seoul area and beyond.
South Korea has one of the highest household debt-to-economy ratios in the world.
Economists are split on whether the BoK will proceed with a policy pivot next month or in November. Governor Rhee Chang-yong said earlier this month the timing to consider a rate cut has arrived as inflation slows, even though issues pertaining to financial stability still need to be considered.
In an attempt to ease concerns about an overheating in property markets and household loans, government officials have stepped in with measures to rein in home prices in recent months, pledging a greater supply of homes and tightening lending regulations.
“The atmosphere in the real estate market has calmed down since the announcement,” Park said, adding the caveat that seasonal factors could be behind that development.
He characterised government efforts as sufficient.
Park’s comments indicate even though his ministry has taken action to cool the country’s property market, it isn’t concerned about a looming BoK rate cut triggering an explosion of prices in Seoul.
His stance also offers a nod of approval essentially for the central bank to proceed with a rate cut when appropriate.
As a policymaker overseeing not only Seoul but the entire nation, Park sought to channel more attention to regions that may have been left largely neglected in policy considerations, saying the elevated level of unsold homes is exacerbating woes for provincial economies.
A major component of South Korea’s overall economy, the construction industry has struggled for years with debt risks surrounding smaller developers in particular as interest rates soared and remained elevated.
While declining to predict when the BoK will cut its rate, Park noted that central banks in the developed world continue to move toward policy easing after years of inflation fights.
The US Federal Reserve is widely expected to cut rates next week, joining the Bank of England and European Central Bank in a long-awaited policy pivot. — Bloomberg
