Household debt becomes greater factor for monetary policy decisions: BOK official

Bank of Korea Deputy Gov. Ryoo Sang-dai speaks during a press briefing in Seoul, June 24. Courtesy of his office

A recent surge in housing prices and the subsequent increase in household debt have led the central bank to carefully consider adjusting the timing and pace of future rate cuts, a deputy chief of the bank said Tuesday.

Bank of Korea (BOK) Deputy Gov. Ryoo Sang-dai also highlighted that ensuring financial stability has become a more significant factor in the bank's rate-setting decisions while meeting with reporters.

"Housing prices are rising very rapidly in some parts of Seoul, and household debt has also increased at a fast pace, which has become a significant concern. What I can say with certainty is that these issues have become a more important factor in our rate decisions than before," Ryoo told the meeting.

"Though we are currently in a rate-cutting cycle based on inflation trends and weak economic momentum, concerns over financial stability, particularly those related to household debt and other external factors, are prompting us to carefully adjust the timing and pace of rate cuts," he added.

Seoul's apartment market has been on an upward trend for 20 consecutive weeks since turning positive in early February, while the pace of gains accelerated recently as banks had eased lending regulations earlier in the year and the Seoul city government temporarily lifted its land transaction approval requirements.

Accordingly, household loans extended by local banks have increased for four consecutive months through May, with May recording the largest on-month gain since September 2024.

Households' debts stood at over 1.7 times the level of their disposable income as of end-2024, with their repayment obligations increasingly weighing on their spending, according to data released by the BOK earlier.

Ryoo warned that the concentration of capital and credit in the real estate market and the Seoul metropolitan area has been a key factor undermining the country's potential growth rate.

"Real estate does not generate high productivity or added value. Such concentration in the sector and the capital region is not merely a matter of inefficient resource allocation; it is closely tied to other structural issues, such as demographic changes, and poses a growing burden on the overall economy," Ryoo said.

While the country's estimated potential growth rate currently stands at around 2 percent, it is expected to continue declining at an "unusually steep and rapid pace" due to the low birthrate and population aging, he added.