A warning from the Bank of Korea that the risk of financial imbalances has increased as the prices of assets such as stocks and housing have risen unusually fast. The BOK believes that the possibility of rapid inflation (increased inflation) appearing in the process of recovering the economy from the shock of the novel coronavirus infection (Corona 19) is not high.
Soaring asset prices such as stocks and houses
Warning of possible growing financial imbalance
On the 11th, the BOK held the Financial Monetary Committee and decided on a report on monetary credit policy. It is a report submitted to the National Assembly in accordance with the Korean Bank Act. Following the last December report, the report warned of the risk of financial imbalances. This means that as the rate of increase in household debt has accelerated, the risk burden for the economy as a whole has increased that much.
Inflation rate trend. Graphic = Reporter Kim Young-ok [email protected]
The BOK evaluated that the rate of increase in asset prices in the domestic stock market and real estate market was considerably faster than in major countries such as the United States and Germany. Lee Sang-hyung, head of the Monetary Policy Bureau of the Bank of Korea, said, “Last year, the amount of apartment occupied apartments in Seoul decreased a lot, which caused concerns about a supply shortage. We estimate that expectations for further increases in housing prices were high.” Director Lee said, “Improving financial conditions through stock price rises, etc., has a side that contributes to the recovery of the real economy.” If the rapid rise of asset prices continues in a situation of high economic uncertainty due to the re-proliferation of Corona 19, the financial imbalance could deepen. There is a possibility” he pointed out.
The BOK implied that it will maintain its monetary policy easing (low interest rate) stance for the time being. It is from the judgment that the aftermath of Corona 19 remains, such as the continued sluggish employment. Although concerns over the recent inflation are raising their heads, the BOK is worried that raising interest rates prematurely could put a cold water on the economic recovery.
According to the National Statistical Office, consumer prices rose 1.1% last month compared to the same period last year. The inflation rate was the highest in a year since February last year (1.1%).
The rate of increase in home sales prices Graphic = Reporter Kim Young-ok [email protected]
In particular, the inflation rate of agricultural and fishery products reached 16.2% last month, the highest in 10 years.
Deputy Governor Park Jong-seok said, “Inflation is reflecting the increase in liquidity due to the global economic recovery trend and financial easing policies.” The reason behind the recent inflation is that ▶ demand has increased as major economies are recovering, and ▶ the value of money is falling and the price of goods is rising as money is released in a large amount on the market at the same time.
Deputy Governor Park predicted, “In the short term, it is necessary to pay attention to inflation due to an outburst of repressed demand or rising raw material prices,” but predicted that “the possibility of continued expansion of inflation will be limited.”
Reporter Yoon Sang-eon [email protected]
