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BOK board members worried over debt, low rate side effects in September

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South Korea's central bank board members were worried about growing household debt and the side effects of prolonged low interest rates on the economy during their Sept 9 policy meeting, minutes showed on Tuesday.

[SEOUL] South Korea's central bank board members were worried about growing household debt and the side effects of prolonged low interest rates on the economy during their Sept 9 policy meeting, minutes showed on Tuesday.

At the meeting, all of the members voted to keep interest rates at 1.25 per cent for a third straight month after cutting them in June.

But the minutes, which are traditionally kept anonymous, displayed a more hawkish tone than in previous months for a majority of the six members whose opinions were disclosed.

The seven-member board includes Bank of Korea Governor Lee Ju Yeol, who automatically votes for the majority when and if it is formed.

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"Recent changes inside and outside the country call for greater consideration in rate changes," said one board member.

"Amid slow global growth while export demand is low, we cannot disregard the dangers of policy aiming to shore up growth while boosting inflation, that depends solely on construction and a spike in household debt."

Another board member chimed in on growing household debt, saying it was the biggest economic issue to be addressed as it could result in an exaggerated rise in asset prices and excessive credit growth.

He said, however, that household debt was unlikely to become a systemic risk to the financial system anytime soon.

There is also a need to monitor the effect of low interest rates on banks' falling future profits from interest margins as well as the effects of corporate restructuring on banks, a third board member said.

Growth is unstable at the moment, but a fourth member voiced the need to strengthen policies that would minimise the risks that could be sparked by the liquidity brought on by previous interest rate cuts.

The most dovish-sounding member of the six in the minutes said low interest rates were here to stay for an extended period of time, but warned if the bank were to stay accommodative for too long due to structural problems it would cause financial imbalances in the economy.

The board will next meet to decide policy on Oct 13.

REUTERS

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