South Korean central bankers were worried that extra-loose monetary policy could pump up house price bubbles, July meeting minutes show, as second-quarter mortgage lending rose at the fastest annual pace in more than two years. Despite such concerns, all of the Bank of Korea's six board members agreed to hold the base rate steady for a fifth straight month at a record low of 2.0 percent.
The central bank also kept the rate unchanged at the August 11 meeting, minutes of which will be released in late September. "(Authorities) need to draw up micro-measures to prevent the recent monetary easing policy from giving rise to excessive asset price growth while closely monitoring the mortgage lending and asset price trends," one member was quoted as saying at the July 9 meeting in the document released on Tuesday.
Analysts said the central bank would not probably raise the benchmark interest rate only because of the growing mortgage lending but would instead try to raise market interest rates by issuing warning remarks. Money-market rates have been rising since early this month as investors bet the central bank's benchmark 7-day repurchase agreement rate has hit bottom and could be raised from November.
Data released separately by the Bank of Korea showed mortgage loans owed by households rose by 10.9 percent by the end of June from a year earlier, the fastest annual growth in more than two years. "I don't think they will lift the rate even if the housing market keeps rising, because overall economic activity remains below a year earlier level and inflation stays low," said Kim Jae-eun, an economist at Hyundai Securities.
"They will most likely employ other micro-measures, such as issuing warning remarks, with the aim of raising market interest rates. They are already doing this," she added. The 91-day certificate of deposit, or CD, rate ended 1 basis point higher at 2.52 percent on Tuesday, the highest close since late February, as traders continued to price in the shift in the central bank's policy toward tightening.
The CD rate, the most influential money-market rate for South Korean banks when they set lending interest rates, has gained 10 basis points over the past three weeks. Three out of 12 analysts surveyed by Reuters after the August 11 meeting forecast the Bank of Korea would start to raise rates from November, while eight saw the increase starting early next year.