South Korean lenders dished out another heavy serving of mortgages in August, underlining that asset prices and not inflation may pose the biggest threat to the country's ultra-loose monetary policy.
The central bank reviews policy on Thursday and is widely expected to leave rates unchanged at a record low of 2.0 percent, but rising house prices and a steady increase in mortgage loans have raised market bets that rates could rise as soon as November to counter any potential asset bubbles.
Central banks normally focus on broad measures of inflation to decide when to change interest rates. But comments from policy makers globally, including the head of the European Central Bank, have sparked market speculation they may be forced to raise interest rates to prevent asset price bubbles forming even though inflation is considered benign.
"We judge the BOK (Bank of Korea) needs a little more time in assessing the strengthening economic data - which we expect to continue - before being confident enough to start hiking rates. We continue to pencil in a 25-basis-point rate hike in November," Kwon Young Sun, an economist at Nomura International.
Bank of Korea figures on Wednesday showed that mortgage lending rose by 2.8 trillion won ($2.29 billion), or 1.1 percent, in August from July to 260.5 trillion won. While that was down from a surge of 3.4 trillion won in July, it was well above the average monthly increase last year of 1.5 trillion won.
"The size of the mortgage loan increase is still considerable," a Bank of Korea official said, asking not to be identified as he is not allowed to speak to the press.
Other central bank data showed little immediate threat from inflation, with money supply growing steadily in July and producer prices in August falling for the fourth month in a row from a year ago.
Mortgage loans have growth at more than 1 percent a month since May and house prices nationally have grown for five straight months. House prices in much of central Seoul are already back to near pre-crisis levels.
Recent history is also adding to market expectations for a rate rise. The central bank raised rates several times between 2005 and 2007 to crack down on a property market boom, even though inflation was well below its target at the time.
Three-month certificate of pretty steady for months, have gained 16 basis points since early August to 2.57 percent to factor in at least a 25-basis point rate rise by the end of the year.