Bank of Korea ready to adjust tightening pace, hopes for terminal rate close to 3.5%

Content of the article

SEOUL — South Korea’s central bank is poised to adjust its pace of policy tightening to achieve a soft landing in real estate and hopes its target rate’s peak in this cycle will be around 3.5 %, its governor said at the Reuters NEXT conference on Wednesday.

Governor Rhee Chang-yong declined to say whether the Bank of Korea (BOK) might start easing policy before the US Federal Reserve does. But he added that South Korean interest rates should not fall too far below those of the United States, due to the risk of capital flight.

Content of the article

« As growth slows, our board will recalibrate the pace of monetary policy tightening, and then we’ll try to achieve a soft landing in house prices, » Rhee said in an interview. .

The BOK, which in August 2021 became one of the first central banks of major economies to start raising interest rates, raised its benchmark short-term rate by a total of 275 basis points, from a record high of 0.5%.

With the key rate now at 3.25%, Rhee hopes it won’t have to go much higher.

« So there’s a lot of uncertainty, but if things go as planned, hopefully we can probably – (the) terminal rate may be around 3.5%. »

South Korean policymakers fear that their household sector is among the most indebted in the world and is all the more susceptible to interest rate hikes due to the prevalence of variable mortgage rates. Real estate prices are already falling.

Content of the article

Rhee stressed that domestic conditions, particularly inflation and growth, remained the central bank board’s priority in deciding the pace of interest rate hikes, but he added that he « will consider certainly the impact of US Fed policy on our external sector ».

« In some sense, too wide a spread (of one) between our rate and the US rate may not be desirable. » The Fed’s key rate is currently between 3.75% and 4.00%.

One of the biggest opportunities for South Korea’s economy next year could come from China’s eventual reopening following pandemic restrictions, Rhee said.

“In fact, if China relaxes its zero COVID policy and reopens its borders and economy, it will be a tremendous boost for us. I hope this can happen soon.

To view the Reuters NEXT conference live on November 30 and December 1, please click on

here

. (Reporting by Cynthia Kim, Choonsik Yoo and Jihoon Lee; Editing by Clarence Fernandez and Bradley Perrett)