Lee Chang-yong, Governor, "Household Debt Will Become a Problem if It Continues to Increase at the Current Rate"

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is conversing with Lee Chang-yong, Governor of the Bank of Korea, at the plenary meeting of the Planning and Finance Committee held at the National Assembly in Yeouido, Seoul, on the 22nd. [Image source=Yonhap News]

Lee Chang-yong, Governor of the Bank of Korea, stated, "If household debt continues to increase at the current pace, it will become a problem in the future," and emphasized the need to adjust micro-level policies for a soft landing of the real estate market.

Governor Lee made these remarks on the 22nd during a current affairs inquiry at the National Assembly's Planning and Finance Committee, explaining the future management plans for household debt.

He explained, "Since October last year, due to inflation, interest rates had to be raised, and if the real estate market were to experience a hard landing, there was a possibility of a financial crisis. Therefore, the Ministry of Economy and Finance and financial authorities implemented micro-level policies to ensure a soft landing of the real estate market. I thought the policies were working well as the real estate market softened until June, but household debt increased again in June and July."

Governor Lee said that the recent increase in household debt, mainly in mortgage loans, is due to the market perception that "real estate prices will no longer fall."

He stated, "If household debt continues to increase at this pace, it could become a problem in the future. We need to retract and adjust the measures that were previously eased through micro-level policies. He added, "The policy goal is to reduce household debt to below 100% of Gross Domestic Product (GDP) and gradually bring it down to below 90% in the mid to long term," and explained, "There is a consensus on gradually reducing household debt."

Governor Lee emphasized again, "Although household debt increased rapidly for about two months, the trend has not changed. It is a very important task to strive over the next few years to bring the household debt ratio below 100%."

Regarding the record-high 2 percentage point gap between the benchmark interest rates of Korea and the United States, Governor Lee said that they are closely monitoring movements in the foreign exchange market.

He said, "We feel burdened by the widening Korea-US interest rate gap," but added, "We are watching to see if the foreign exchange market becomes unstable again. Fortunately, there is an international market perception that even if the US Federal Reserve (Fed) raises rates further, it will likely raise by 25 basis points (1bp = 0.01 percentage points) once more and then pause."

Governor Lee said, "This is based on the fact that US inflation is stabilizing," and added, "What we worry about is if the US economy continues to show strong performance and the Fed raises rates more than the market expects. In that case, we will have to respond accordingly; otherwise, we plan to monitor and respond to movements in the foreign exchange market."

This content was produced with the assistance of AI translation services.