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S.Korea central bank ready to adjust policy tightening to help slow housing market

30.11.2022

SEOUL South Korea's central bank is ready to adjust its policy tightening to achieve a soft landing in real estate and hopes the peak of its target rate in this cycle will be around 3.5 per cent, the governor said at the Reuters NEXT conference on Wednesday.

Governor Rhee Chang-yong declined to say whether the Bank of Korea BOK could begin easing policy before the U.S. Federal ReserveU.S. Federal Reserve did so. He said that South Korean interest rates should not get too far below those of the United States because of the risk of capital outflow.

Our board will try to achieve a soft landing of the housing prices as a result of the slowdown in growth, and we will restart the pace of monetary policy tightening, according to Rhee in an interview.

In August 2021, the BOK was one of the first major-economy central banks to raise interest rates, lifting its benchmark short-term rate by 275 basis points from a record low of 0.5 per cent.

With the policy rate now at 3.25 per cent, Rhee hopes it won't have to go much higher.

There are a lot of uncertainties, but if things go as expected we hope that we can probably - the terminal rate can be around 3.5 per cent. South Korean policymakers worry that their household sector is one of the world's most indebted and is more susceptible to interest rate rises because of the prevalence of variable mortgage rates. Real estate prices are already falling.

Rhee stressed that domestic conditions, especially inflation and growth, remain the central bank board's priority in deciding the pace of interest rate rises, but he added that he will look at the impact of U.S. Fed policy on our external sector. A gap between our rate and the U.S. rate may not be desirable in some sense. The Fed's policy rate is currently 3.75 per cent to 4.00 per cent.

One of the biggest opportunities for South Korea's economy could be the reopening of China next year from the Pandemic restrictions, Rhee said.

That will be a tremendous boost for us if China loosens its zero-COVID policy and opens their borders and economy.