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BOK Monetary Policy Committee Members Express Concerns Over Excessive Housing Price Increases and Rapid Growth in Credit Loans

BOK Monetary Policy Committee Meeting Minutes

BOK Monetary Policy Committee Members Express Concerns Over Excessive Housing Price Increases and Rapid Growth in Credit Loans Lee Ju-yeol, Governor of the Bank of Korea (center), is presiding over the Monetary Policy Committee meeting held on the 27th of last month at the Bank of Korea in Jung-gu, Seoul.
[Image source=Yonhap News]


[Asia Economy Reporter Eunbyeol Kim] Members of the Bank of Korea's Monetary Policy Committee expressed concerns about the phenomenon of asset concentration in housing and stock markets despite the sluggish economy.


According to the minutes of the Monetary Policy Committee meeting (the 19th meeting of 2020, held on August 27) released by the Bank of Korea on the 15th, one committee member stated, "Looking back at the past credit card crisis, a significant factor was individuals facing rollover risks, which triggered the crisis," adding, "Although the scale of credit loans is small compared to total household loans, their maturity is typically around one year, which could act as another risk factor from a financial stability perspective."


The relevant department at the Bank of Korea finds it difficult to identify the specific purposes and uses of credit loans but views housing-related funding demand as a major background for the increase in credit loans. This committee member emphasized, "It is necessary to watch the rising trend of credit loans with vigilance," and urged, "We must continue to consult and review with relevant authorities to ensure that strengthening housing loan regulations to promote financial stability does not cause other risks."


Another member also noted, "Unlike jeonse (key money deposit) loans, it is difficult to track where credit loan funds flow," and added, "Since such funds may concentrate in specific sectors chasing returns, efforts should be made to develop indicators that can monitor these capital flows."


Some members expressed the view that, given the recent excessive rise in housing prices, it is necessary to continuously pay attention to financial stability when conducting monetary policy. One member asked, "Various institutions publish housing price indices, but which index do you think is the most useful in the current situation?" and inquired about the views of the relevant department. The Bank of Korea responded that it is comprehensively considering various indicators.


There was also an opinion that it is necessary to diversify the measurement periods and methods when evaluating the degree of housing price increases from a financial stability perspective. One member said, "It is necessary to compare movements with macro indicators such as Gross Domestic Product (GDP)," and added, "For some indicators like the price-to-income ratio (PIR), comparisons by country and major cities are also needed." Another member added, "It would also be meaningful to analyze PIR by income and asset ownership levels using microdata."


The relevant department at the Bank of Korea explained, "Although PIR can vary depending on sample composition, the ratio for Seoul apartments is rising at a pace similar to the mid-2000s, when housing prices surged."


There was also a view that the reason construction investment effects are relatively muted despite rising housing prices domestically is due to housing supply not responding flexibly. One member stated, "In other countries, housing supply tends to move in connection with housing prices with a time lag," explaining this point.


Meanwhile, the Bank of Korea's Monetary Policy Committee unanimously decided to keep the base interest rate unchanged at 0.50% as of the 27th of last month. The rate had been lowered by 0.50 percentage points in March and 0.25 percentage points in May, and has been held steady since then.


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