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| The Bank of Korea is facing growing pressure to raise the key rate in a bid to rein back soaring apartment prices in Seoul and the capital region. / Korea Times file |
By Jhoo Dong-chan
The Bank of Korea (BOK) is under mounting pressure to raise the interest rate in a bid to rein back soaring apartment prices in Seoul and the capital region.
The Moon Jae-in administration and ruling Democratic Party of Korea (DPK) have introduced a series of real estate policies to cool down the soaring housing prices since August last year, only to fail so far.
Housing prices have been rising through the roof all around Seoul especially after Seoul Mayor Park Won-soon's announcement of development plans, including dissolving some greenbelt zones in the capital city.
DPK lawmakers now claim the central bank should immediately raise the policy rate to squeeze the nation's idle funds estimated at over 1,000 trillion won ($889 billion), but market observers say the government and the ruling party are just passing the buck to the BOK.
Rep. Choi Woon-yeol of the DPK was the first one who opened fire against the BOK, claiming it is impossible to curb soaring housing prices in Seoul unless the central bank squeezes 1,117 trillion won worth of the idle funds in the market. Choi is a former BOK Monetary Policy Board member.
"The key rate gap with the U.S. will reach 0.75 percent next month. Korea will have no choice but to raise the rate if the Federal Reserve takes the initiative," he said. The gap is currently 0.5 percent.
"The BOK has to pre-emptively raise the interest rate before the country sees any massive capital outflow."
Fellow DPK Rep. Lee Chul-hee also blamed the BOK.
"The BOK's low interest-rate policy partly drove Seoul's soaring housing prices up during incumbent Governor Lee Ju-yeol's tenure," he said during his appearance on the JTBC show "Ssul Jeon."
"Of course, there are a number of ways to cool down Seoul's surging housing prices without raising the key rate, but the BOK is the one that helicoptered money into the market in the first place. It should now contribute to stabilize the prices."
Experts, however, are skeptical of the ruling party's claim.
"It's nonsense to ease the soaring housing prices by raising the policy rate," a Seoul-based economist told the local business daily Korea Economic Daily.
"Plus, Seoul and nearby cities are the only places that show any overheated speculation in housing prices. If the BOK raises the key rate hastily, it will backfire in the nation's economy."
According to the Korea Appraisal Board, Seoul's apartment prices rose 7.19 percent during the past year while those of Ulsan and South Gyeongsang Province declined over 7 percent. Housing prices of other regions also slid up to 5 percent in the period.
"Soaring home prices have nothing to do with the nation's economic status. It is rather related to the government's recent housing development policy," Governor Lee said.
"It is inappropriate to assess the policy rate in accordance with the nation's housing prices."
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