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| Lee Il-houng |
Korea should refrain from making monetary policy any more "accommodative," to prevent further financial risks involving the already overheated property market, a rate-setting board member with the central bank said Wednesday.
"While debt growth in the property market is showing signs of slowing, the country needs to remain highly vigilant against a financial imbalance that could be exacerbated by rising debt in the market," said Lee Il-houng, a member of the Monetary Policy Board of the Bank of Korea (BOK).
Examples of a financial imbalance include excessive liquidity-induced property market overheating.
His remarks are largely seen as a defense against a de facto "rate cut," after the International Monetary Fund essentially recommended that the central bank lower the key interest rate.
He pointed out not only households but businesses including the self-employed in rent businesses all seek to increase their leverage in property investment, a reason financial institutions are becoming more vulberable to higher risk of exposure.
The remark means market participants could incur financial losses in case their debt outweighs the initial investment cost, which in turn could lead to further, greater loss affecting the country's economy as a whole.
"A financial imbalance triggered by an accommodative monetary policy seeking to boost inflation in the short term could lead to sluggish growth and higher debt," he said.
He added it can also result in an oversupply of certain financial products.
"The move seeking a short-term economic benefit could lead to a downward pressure on inflation in the mid-to long-term, which requires particular caution."
