(Bloomberg) -- A Bank of Korea member flagged expectations that government measures aimed at reining in housing prices will gradually take effect, underscoring hopes that a cooling property market may allow the central bank to begin a policy pivot as early as next month.
Until now a hotter-than-expected recovery in Seoul’s home prices has kept the BOK from pivoting to an easing cycle as authorities feared easier policy settings might raise the risk of financial imbalances. South Korea has one of the highest levels of household debt in the developed world.
The government last month announced a series of steps to boost housing supply in a bid to bring the real estate market under control and deter households from taking on more debt. There are expectations the measures may start to pan out, BOK board member Chang Yongsung said Thursday in a note.
He didn’t elaborate on whether those expectations belonged to investors or policymakers, or how long it would take for the measures to prove their effectiveness. His comments, attached to a regular BOK report on financial stability, came a little more than two weeks before the board convenes on Oct. 11 for its next rate decision.
In a separate statement Thursday, the Finance Ministry said the rise in household debt may slow this month compared with August as the measures start to materialize. The ministry blamed a spike in August lending on a rush among consumers to take out loans before those measures took effect.
Chang’s remarks came a day after two Korean policymakers appearing at separate events discussed the case for prioritizing policy that spurs spending over curbing household debt. While Thursday’s report showed optimism over government measures, it also highlighted risks associated with moving too quickly.
Chang, who led the Thursday meeting, noted that concerns about potential financial imbalances are persisting as a result of increases in home prices in the greater Seoul area and rising private loans. The report said the monetary board overall remains concerned about home prices. Members cited signs of “overheating” among apartments in Seoul in particular.
Even as the central bank has kept its benchmark at a restrictive 3.5%, some market rates have turned lower this year, allowing housing prices to pick up primarily around middle-class neighborhoods in the capital.
On Wednesday, another board member Shin Sung Hwan told reporters the BOK has thus far refrained from signaling a rate cut because it was concerned price rises might spread further beyond Seoul.
But the bank could go ahead with a policy pivot without waiting to see “100%” signs of a cooling in the property market, he said, citing lackluster consumption in the economy.
While the BOK report on Thursday raised concerns about housing prices in Seoul, it also flagged their moderating pace of growth and pointed out that prices are actually falling in regions away from the capital.
The disparity between conditions in Seoul and provincial areas complicates the policy equation for the BOK as construction plays a key role in regional economies. Finance Minister Choi Sang-mok said Wednesday that aiding consumption outweighed curbing household debt as his policy preference and he hopes the BOK will make a “wise decision” in October.
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