SEOUL (Reuters) – South Korea’s central bank said on Thursday it needed to be cautious about a policy shift amid persistent economic risks, such as likely U.S. interest rate cuts and uncertainty over the domestic housing market and debt.
In its quarterly monetary policy report, the Bank of Korea (BOK) said: “There are risks remaining to be noted in the final stage of entering the period of price stability.”
The BOK said a premature shift away from tighter monetary settings could undermine policy credibility and send the wrong message to financial markets about debt and risk-taking.
The BOK cited a policy shift in the United States as one of the risks that could delay disinflation and de-leveraging, although it would also reduce the burden on domestic monetary policy in terms of foreign exchange.
Uncertainty is “very high” when it comes to home prices and household debt, the BOK said.
On risks related to financial institutions’ investments in commercial property markets abroad, the central bank said the possibility of them becoming systemic was low but they needed to be monitored more closely.
Most BOK board members said it was too early for a pivot in monetary policy at their last rate decision meeting in February, when they kept interest rates at a 15-year high, minutes showed earlier this week.
(Reporting by Jihoon Lee. Editing by Sam Holmes.)
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