[2023 National Assembly Audit] Lee Chang-yong "Considering Interest Rate Hike if Household Debt Doesn't Decrease Despite Tightening Regulations"

October 23 Bank of Korea National Audit
"Considering Financial Market Instability and Economic Downturn... Need to Observe for Several Months"

Lee Chang-yong, Governor of the Bank of Korea, stated on the 23rd, "We will tighten regulatory policies again, and if the pace of household debt increase is still not controlled, then it will be time to seriously consider raising interest rates."

Governor Lee made this remark in response to lawmakers' questions about measures to curb the rapid surge in household debt during the National Assembly audit of the Bank of Korea held that day.

Additionally, in response to lawmakers' criticism asking, "Why not raise interest rates to suppress household debt?" he expressed the difficulty of having to consider financial and real estate project financing (PF) instability caused by high interest rates.

Governor Lee explained, "If we (the Bank of Korea) raise interest rates further, of course, we can curb household loans. However, we need to think about how to handle the resulting financial market stability issues, and since inflation (consumer price index) once dropped to 2.3%, we decided to keep the base rate unchanged."

He added, "Household debt rose in the past month or two but decreased in September. At this point, considering the policy lag, we need to wait a few months and observe whether it is controlled."

He also explained the recent easing of real estate regulations by financial authorities as "a measure to respond to instability in the financial and real estate markets."

Governor Lee stated, "I believe it is my responsibility to gradually reduce the ratio of household debt to gross domestic product (GDP) to below 100%, close to 90%, through interest rates and policy coordination with the government. However, if we try to adjust too quickly right now, the economy will deteriorate too much, so we will proceed slowly."

[Image source=Yonhap News]

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