BOK chief downplays risks of household debt

Bank of Korea Gov. Kim Choong-soo claimed Thursday that it was undesirable for monetary policymakers to seek interest-rate cuts to resolve the country’s household debt problems.

The remarks from the outgoing central bank chief came after the BOK’s rate-setting committee kept the benchmark rate unchanged at 2.5 percent per annum on the day, which marked a freeze of 10 months in a row.

“Though some (low-income) brackets have shouldered the burden of rising interest costs, it is still not appropriate to adjust the rates for the sake of reducing the impact of household debt,” Kim told a news briefing.

He said the consumer debt issue should be settled through economic growth although it may take longer than expected, stressing that raising overall household income could be the key solution.

Concerning a series of warnings regarding the snowballing volume of outstanding household debt that surpassed 1 quadrillion won ($900 billion) at the end of 2013, he argued that “chances are not high that the household debt itself would create a crisis by undermining the nation’s financial stability.”

Kim clarified that he does not share the view of economists that the debt level is too high compared to other major countries.

The outgoing governor said he remained upbeat about Korea’s economy, citing the 1.6 percent export growth in February and 24 straight months of current account surplus.

Kim’s four-year term expires later this month. He has been regarded as a close confidante to former President Lee Myung-bak, sparking rumors that he had overstayed his welcome.

Meanwhile, the rate-setting committee said in a statement that “In Korea, the committee considers the economic recovery to have continued in line with the trend of growth, as exports continue to increase amid the coexistence of both improving and worsening domestic-demand related indicators.”

On the job front, employment grew substantially, driven by significant growth in the 50-and-above age group and in the service sector, according to the seven-member committee.

It also said the BOK expected that the domestic economy would maintain a negative output gap for the time being, although it forecasts that the gap will gradually narrow.

By Kim Yon-se (kys@heraldcorp.com)