South Korea's Central Bank to Sustain Economic Growth and Monitor Housing Market

Strategic Insights -

South Korea's Bank of Korea (BOK) will aim to sustain the country's economic growth while keeping consumer prices stable in 2007. Governor Lee Seong-tae announced the central bank's plans in its New Year's message, citing a flexible interest rate management strategy. The BOK will also monitor the money supply and strengthen its oversight of the asset market, with a particular focus on addressing soaring housing prices. This move comes after the central bank increased the required reserve ratio on local bank deposits in November to curb lenders' ability to extend home-backed loans.

Key Takeaways:

  • The Bank of Korea (BOK) plans to maintain a flexible interest rate management strategy in 2007 to sustain economic growth and keep consumer prices stable.
  • The central bank will closely monitor the money supply and strengthen its oversight of the asset market, with a focus on addressing rising housing prices.
  • In November 2006, the BOK raised its required reserve ratio on local bank deposits to cap lenders' ability to extend home-backed loans, without hiking its official interest rate.
  • The BOK kept its interest rate at 4.5 per cent for a fourth time in December 2006, after it was increased by 0.25 percentage point to a five-year high in August 2006.
  • South Korea's housing prices rose at their fastest pace in over 16 years in November 2006.
  • The Financial Supervisory Commission, headed by Yoon Jeung-hyun, will take preemptive policy measures to counter potential unrest in the financial markets.
  • The commission aims to minimize the negative impact of surging mortgage loans on households' balance sheets.

Statistics:

  • The required reserve ratio on local bank deposits was increased by an unspecified amount in November 2006.
  • South Korea's housing prices rose 16.7% in July 2006, making it the fastest pace in over 16 years (Kookmin Bank, 2006).
  • The Bank of Korea's interest rate was maintained at 4.5% for four consecutive months in 2006 (BOK, 2006).
  • The Bank of Korea's interest rate was increased by 0.25 percentage point to a five-year high of 4.75% in August 2006 (BOK, 2006).
  • The Financial Supervisory Commission oversees the financial markets and provides regulatory support, but specific statistics on its activities are not mentioned in the source material.

Sources:

  • Asia Pulse, "S. Korea's central bank to sustain economic growth while checking housing prices" (01-01 0939)
  • Kookmin Bank, "Housing prices surge to 16-year high in November" (2006)
  • Bank of Korea, "Interest Rate" (2006)
  • Yonhap, "Financial regulator vows to stabilize markets in 2007" (01-01 0939)