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Bank of Korea Governor Rhee Chang-yong expressed concerns on Monday about potential financial risks associated with prolonged monetary tightening, citing recent market apprehensions over a financially troubled builder as a “warning sign.”
While emphasizing that managing inflation remains a top priority, Rhee stressed the importance of finding the right policy mix as South Korea nears the conclusion of its extended efforts to control consumer prices. He pointed to uncertainties surrounding commercial real estate loans in major countries and the restructuring of a mid-sized local developer with a heavy debt load as indicators of potential economic challenges.
Rhee highlighted the need for thorough preparation to address the possibility of financial instability arising from continued tightened policies. He emphasized the importance of preventing credit risks from growing around vulnerable sectors in the economy.
Following an announcement by Taeyoung Engineering & Construction (009410.KS) to restructure its debt, which caused market concerns, Rhee met with Finance Minister Choi Sang-mok and financial regulators. The 16th largest builder in the country holds a debt of 4.58 trillion won ($3.6 billion), including project financing loans.
Rhee reiterated that the central bank’s inflation target of 2% remains valid, but external and domestic factors require careful adjustment to determine the optimal interest rate path and the duration of maintaining tightened monetary policy.
South Korea’s annual consumer inflation eased for a second consecutive month in December to 3.2%, supporting the Bank of Korea’s view that price pressure will gradually ease to its target level of 2% by the end of 2024.
President Yoon Suk Yeol also commented on Monday, stating that pressure on prices is expected to further ease in 2024. The government will implement measures to ensure that the financially vulnerable, including small business owners, benefit from the pullback in inflation.
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