Will the’debt trap’ fall?

[이데일리 최정희 기자] “If the focus of the monetary credit policy over the past year was to prevent a sharp decline in the economy and stabilize employment, this year, we must ensure that the Bank of Korea’s concerns and efforts for financial stability as well as the real economy are well known to the outside world.”

This is the background of the’Financial Market Stabilization Efforts’ in the general principles of monetary credit policy operation in the ‘2021 Monetary Credit Policy Operation Direction’ announced by the Bank of Korea on the 24th of last month.

According to the minutes of the Financial and Monetary Commission released by the BOK on the 8th, a member of the Bank of Finance said in this way and was concerned about the’debt-trap’ warned by the International Settlement Bank (BIS). The debt trap refers to situations in which interest rates cannot be raised due to excessive debt. Commissioner Lee stressed, “It is necessary to seriously see and respond to the growing debt of economic actors, especially household debt.”

In particular, he explained, “It is necessary to carry out the policy while paying attention to the situations that may arise if the policies or measures taken inevitable in the course of responding to Corona 19 become normal in the future.”

Finance Commissioner Lee said, “The BOK has been easing monetary policy in response to the Corona 19 crisis. In the future, we will have to pay much more attention to financial stability.”

The talk of’financial stability’ came from the mouths of other bank members. Another member said, “It would be better to revise the’general principles of monetary credit policy operation’ and the need to take account of financial imbalances and efforts to stabilize the financial market in the area of ​​consideration for related financial stability.”

One of the reasons why the FSC pays much attention to financial stability is the pace of household debt growth. Household debt was 1940 trillion won at the end of September last year, surpassing the gross domestic product (GDP, 1918 trillion won) for the first time. A bank member said, “As the scale of household loan growth last year was exceptionally large, it is worth noting that even if the scale of household loan growth is reduced from last year, it is larger than the previous year.”

There was also an opinion that the FSC should focus more on stimulating the economy than on financial stability. One member said, “It is good to reflect the expansion of economic uncertainty at home and abroad due to the recent re-proliferation of Corona 19 in the operating conditions of the monetary credit policy in a timely manner.” He expressed the opinion that the direction of monetary policy of major countries should also be a major factor in determining monetary policy by the BOK, and that there is a need to reinforce the explanation.

Some committee members expressed concern about the emphasis on’financial stability’. Commissioner Lee explained, “It is necessary to communicate with attention to the fact that the expression (with greater attention to the risk of financial imbalance) may cause unintended market reactions in situations where economic concerns have not yet subsided.”