Bank of Korea Governor Warns Yeongkkeuljok: "Low Chance of Rapid Interest Rate Cuts" (Comprehensive)

Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee meeting held on the 22nd at the Bank of Korea in Jung-gu, Seoul. Photo by Joint Press Corps

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Lee Chang-yong, Governor of the Bank of Korea, warned about the so-called 'real estate yeongkkeuljok' who excessively borrow money to purchase houses.

At a press conference held on the 22nd at the Bank of Korea in Jung-gu, Seoul, Governor Lee said, "Currently, the Monetary Policy Board members clearly agree that the Bank of Korea will not operate monetary policy to the extent of supplying excessive liquidity that would fuel the sentiment of rising real estate prices," adding, "One should not think that interest rates will quickly drop to around 0.5% as before, reducing the burden on yeongkkeul (borrowing to the limit)."

Governor Lee emphasized, "If (yeongkkeuljok) think that real estate prices will rise rapidly as they did from 2018 to 2021, two things must be considered." The first is, "We need to consider that the current government's housing supply measures are realistic and bold," and he added, "I hope the government's real estate supply policies will be realized through the National Assembly, which could act as a constraint on continuous real estate price increases."

The second is the government's demand-side policies, such as the application of the Debt Service Ratio (DSR). He said, "Yesterday, the Financial Services Commission Chairman stated that if the recently announced demand measures are insufficient, additional policies will be implemented to respond to real estate prices," expressing expectations for the policy's effectiveness.

Lee Chang-yong, Governor of the Bank of Korea, is presiding over the Monetary Policy Committee meeting held at the Bank of Korea in Jung-gu, Seoul on the 22nd. Photo by Joint Press Corps

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On this day, the number of Monetary Policy Board members at the Bank of Korea who believe that the possibility of a base rate cut within three months should be kept open significantly increased.

Governor Lee said, "Among the six Monetary Policy Board members excluding myself, four expressed the view that the possibility of a base rate cut within the next three months should be kept open." He added, "The remaining two believe it is appropriate to maintain the interest rate at 3.5% even after three months."

Compared to the Monetary Policy Board meeting in July, the number of members who think the possibility of a rate cut should be kept open increased from two to four.

Regarding the basis for keeping the possibility of a rate cut open, Governor Lee explained, "Since the inflation rate is expected to converge to the target level and government policies related to real estate will be implemented, the idea is to keep the possibility of a cut open while monitoring financial stability and then decide on the interest rate."

At this meeting, the Bank of Korea's Monetary Policy Board unanimously decided to keep the base rate unchanged. Governor Lee emphasized, "If the rate cut is delayed too much, the recovery of domestic demand may be delayed, weakening growth momentum," but added, "At the current situation, the risk of fueling real estate price increases and expanding volatility in the foreign exchange market is judged to be greater."

Governor Lee also said that, based on current inflation alone, conditions for a base rate cut have been created. He stated, "Confidence that the inflation rate will converge to the target level has increased," and "From the perspective of inflation alone, conditions for a base rate cut are being formed."

However, he explained the reason for maintaining the base rate, saying, "While keeping rates high risks further slowing domestic demand, there are many warning signs regarding rising real estate prices and household debt."

Governor Lee added, "Since the goal of financial stability is very important, we inevitably have to consider (household debt, etc.), and when looking at the overall Korean economy, Monetary Policy Board members think it is not good to just let real estate prices rise."

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