By Lee Hyo-sik
Korea Times Correspondent
ISTANBUL ― The nation's top banker hinted Wednesday that the Bank of Korea (BOK) will hike its key rate in the near future in a bid to curb a range of side effects of the prolonged loose monetary policy, including a possible real estate bubble.
BOK Governor Lee Seong-tae said here that property prices in Korea are showing growing signs of overheating, saying changes in housing prices are a key determinant in the future course of its monetary policies.
"Real estate value surged from 2002 through 2007. But despite the worldwide economic slump late last year, prices here did not go down as much as those of advanced counties. The more troubling part is that housing prices have resumed a steep ascent since March this year," Lee said.
The governor said the central bank is gravely concerned about the current housing market conditions because the recent surge in home prices are closely linked to soaring household debts.
His remarks came one day after the Australian Central Bank raised its key rate by 25 basis points, becoming the first G20 member economy to increase the cost of borrowing. Australia is one of the few countries with which Korea has been closely cooperating on internationally coordinated "exit strategies," raising a possibility that BOK may follow in its footsteps.
Lee also said Korea needs to closely cooperate with other economies on the timing and the speed of the upcoming exit strategies.
But government officials have been pressuring the central bank to keep the interest rate at the current level, arguing that now is not the time to increase borrowing costs because the continued expansionary policy is a must to facilitate the slowly recovering economy.
The central bank has frozen its policy rate since March, putting a break on its monetary easing cycle that trimmed the rate by 3.25 percentage points since last October. With BOK leaning increasingly toward the rate hike, its monetary policy committee meets on Oct. 9 to decide the course of Korea's monetary policy.
Governor Lee also said Korea needs to closely cooperate with other economies on the timing and the speed of the upcoming exit strategies.
"However, international cooperation is not legally binding. Its aim is to boost opinion exchange and information sharing, which means we are not obligated to stick to international consensus," he said, indicating that BOK may decide to raise the key rate, despite opposition from the government.