BOK head vows not to increase liquidity amid soaring home prices

Bank of Korea Gov. Rhee Chang-yong speaks during a National Assembly Strategy and Finance Committee audit at the central bank headquarters in Seoul, Monday. Yonhap

Bank of Korea Gov. Rhee Chang-yong cautioned Monday that increasing liquidity could further fuel the real estate market craze, hinting the central bank will not cut the key interest rate any time soon.

His comment came just three days before the central bank’s rate-setting meeting slated for Thursday and amid renewed signs of property overheating began in September.

“Housing supply in Seoul will not be able to keep up if population inflows continue into the capital area,” Rhee said during a National Assembly Strategy and Finance Committee audit of the central bank. “Education systems including college admissions must be resolved to curb the population influx into the capital city, a prerequisite for stabilizing Seoul housing prices.”

The issue of real estate overheating is too complex to be resolved by a single policy, he said. “Real estate prices are tied to income distribution, population concentration in the Seoul capital area and household debt. Structural changes are necessary, even though there is no silver bullet to satisfy everyone.”

Challenges of policy reform will abound in the years to come, he added. “Changing just one or two policies won't solve the problem. Complementary measures are also essential.”

Korea’s jeonse system is an example. Jeonse is a unique rental system where tenants pay a lump-sum refundable deposit in lieu of monthly rent.

“The recent government measures have caused difficulties for some tenants. However, failing to reform the jeonse system would only lead to more leverage in the long run. The current real estate market conditions and developments may also constrain our ability to lower interest rates," Rhee said.

In March, the central bank and the country’s statistics agency published a report on the issue.

At the time, the two entities said Korea should promote decentralization, granting fiscal and policy autonomy to municipalities with populations between 5 million and 10 million to enhance economic growth and administrative efficiency.

The "de-Seoulization" efforts, they added, will be further solidified through improvements in living conditions for highly skilled workers in research and development, as well as region-specific policies that ensure a steady inflow of investments.

They concluded that this would help reduce the economic polarization between the Seoul metropolitan area and the rest of the country, a gap that has widened since the 2000s, as reflected in low birthrates and sluggish economic growth.