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Governor downplays Taeyoung E&C risk and says crisis can be managed By Lee Kyung-min Any discussions about easing the current restrictive monetary policy are "premature," Bank of Korea Governor Rhee Chang-yong said, Thursday, in a move to moderate market expectations of a swift rate cuts of up to 75 basis points throughout the year. Anchoring such characterization is the country’s rapid buildup of household debt, a major financial stability concern influenced almost exclusively by real estate market sentiment. Any indication of a dovish pivot in monetary policy could fuel property price hikes, negating months of stable downward trajectory. The comments were made shortly after the central bank’s rate-setting monetary policy board reached a unanimous decision to leave the key rate unchanged at 3.5 percent for the eight consecutive time. The central bank, according to the governor, does not anticipate systemic financial risks from the challenges faced by the local builder, Taeyoung E&C, since the isolated case concerned the 16th largest industry player defined by high debt-to-equity ratio. The potential repercussions of the builder's project financing exposures and any subsequent shocks in the financial market will be mitigated by a sufficient array of policy tools, a scenario he said was "not even close" to unfolding. Bank of Korea Governor Rhee Chang-yong speaks during a press conference at the bank's headquarters in Seoul, Thursday. Courtesy of Bank of Korea Diminished need “We judged that the need to raise the key rate has diminished, as indicated by a sustained slowdown in real estate prices and eased global geopolitical risks,” Rhee said during a press conference at the central bank in Seoul. Thursday’s decision is a notable shift from the previous monetary policy meeting when four out of six committee members called for a further rate hike of 25 basis points to 3.75 percent. The current restrictive policy will continue until the board judges that price stability has been maintained for a sufficient period with inflation moderating to the target level of 2 percent, he said. “At least six months will be needed for the board to consider a rate cut,” he said, stressing the opinion was his own and did not reflect the views of other committee members. The governor emphasized that a 9 trillion won aid package announced earlier on Thursday is separate from the Taeyoung developments. The financial program aims to provide liquidity to ease interest burdens shouldered by small businesses in non-metropolitan regions. “The assistance program seeks to bolster the efficacy of monetary policy,” he said. Rhee positively assessed the land ministry’s policy of easing regulations on reconstruction and redevelopment outlined a day earlier. “The supply-side measures help stabilize real estate prices, because they inform us in advance of market conditions. It will help with the soft-landing of the property market.” The central bank and the financial regulators will continue efforts to curb the household debt-to-GDP ratio. The long-term goal is to gradually lower the figure to below 90 percent, aided by stable downward adjustments in real estate prices, he said. “The ratio snapping out of the continued rapid upward trend over the past few decades is a great feat in and of itself – a task no previous administration has achieved,” he said. China's economic slowdown is another risk factor the central bank is closely monitoring. The pace of a reorientation of Korea-China supply chains is faster than expected, in his view, challenging Korea’s export growth outlook long underpinned by its Asian neighbor. Half of Korean-made chips were imported by China. However, the amplifying U.S.-China tensions make it difficult to project how the local semiconductor industry would perform, he said. “This is a sensitive issue tied closely to the number of inbound Chinese tourists and other current account considerations.” The governor said cryptocurrency is now an official investment vehicle, referring to the overnight approval of U.S. Securities and Exchange Commission on the listing of the Bitcoin Spot exchange-traded fund (ETF). “Bitcoin has definitely become an investment asset. Now it will be about the stability and vulnerability of the virtual asset. This is a step further from the previous debate on whether digital coins should and would be recognized as fiat currencies and the probability of them replacing those." Hyundai Research Institute senior researcher Ju Won said the central bank's less hawkish stance is in line with market expectations."The central bank statment is less restrictive, but it will take time before the rate cuts materialize, given household debt and property market concerns."
Read more: koreatimes
