Rhee Chang-yong, governor of the Bank of Korea, said on the 23rd that "the rise in real estate assets is eating away at Korea's economic growth rate and potential growth rate." He also said that a decline in real estate prices does not lead to economic stability. The point is that the trend, not the absolute price level, matters. Rhee said, "At present, since the (real estate price) growth trend is continuing, shouldn't it show some stabilization and a slowdown."
Rhee made the remarks at a press briefing held at the Bank of Korea (BOK) headquarters in Jung District, Seoul, after the Bank of Korea's monetary policy committee meeting, emphasizing that "Korea's real estate is expensive regardless of whether there is a bubble." He said, "Given Korea's income level and in terms of maintaining social stability, (real estate prices are) too high."
The Bank of Korea's monetary policy committee kept the base rate unchanged at 2.5% per year at its plenary meeting that day. Of the six committee members excluding Rhee, four said the possibility of a rate cut within three months should be kept open. At the previous meeting, five projected a rate cut, but this time the number fell by one.
Regarding this, Rhee said, "By freezing the rate since July and August, the market could expect that 'the Bank of Korea (BOK) will take it slow on the pace and magnitude of cuts.'" He added, "If we had cut (the rate) this time, there would have been a risk that lower investment costs would accelerate the rise in real estate prices." He also said, "The government announced additional real estate measures, and from a monetary policy perspective, we judged it necessary not to fuel expectations for rising dwelling prices."
On the 15th, the government announced the Oct. 15 measures, centered on the blanket designation of all of Seoul and parts of Gyeonggi Province as speculative overheated zones, adjustment target areas, and land transaction permit zones. Rhee assessed the Oct. 15 measures positively. He said, "For the time being, because of the new policy, much of the threat of (household) liability increases has receded."
That day, Rhee also emphasized that the base rate cannot be decided by looking only at real estate prices. Rhee said, "(One of the confusions in the market is) the idea that the Bank of Korea (BOK) can control real estate prices through interest rates, or that it should," adding, "If real estate prices keep rising but the economy slumps, we have no choice but to lower rates."
He went on, "While inflation is led by the Bank of Korea (BOK), real estate prices are adjusted by government policy," adding, "When the government pursues policies to lower real estate (prices), the Bank of Korea takes a stance in monetary policy not to stoke (price increases)."
He also said that rate cuts so far have led more to asset price increases than to economic stimulus. Rhee said, "On average, a 100-basis-point (1 bp = 0.01 percentage point) rate cut has the effect of raising the growth rate by 0.24 percentage point," but added, "Looking at various data now, we suspect that (rate cuts) have lifted asset prices more than they have stimulated the economy as much as we thought."
Although the Korea Composite Stock Price Index (KOSPI) broke through 3,900 points for the first time ever, Rhee assessed that there is no bubble. He said, "(Our) stock prices are not yet particularly high by international comparison," adding, "There is no need to worry about a bubble at all."
However, he cautioned about the upward momentum in artificial intelligence (AI). Rhee said, "The question of whether there is a 'bubble' in the AI sector is highly controversial not only in Korea but around the world," adding, "Because of that, (stock prices) could undergo a correction."
He projected economic growth rates of 0.9% this year and 1.6% next year. These are the same figures as the August outlook. However, Rhee said, "In November, a great many (economic) variables will emerge," adding, "We need to see how the tariff negotiations between Korea and the United States proceed, and the course of tariff talks between the United States and China will also affect the entire world."
On the won-dollar exchange rate, Rhee analyzed that "one-quarter is due to dollar strength, and the remaining three-quarters are due to yuan and yen weakness, tariff issues, and concerns about raising $350 billion for U.S.-bound investment," adding, "If the uncertainty over tariff negotiations disappears in a favorable direction, the exchange rate will fall," and "We are working to mitigate volatility."