South Korea’s central bank holds policy rate as housing prices rise
The busy road in front of the Bank of Korea building in Seoul. File/Agence France-Presse
The Bank of Korea (BOK) held the base rate at a historic low of 0.5%, as expected by all 34 economists in a Reuters poll.
The central bank said the pace of recovery had slowed due to the resurgence of COVID-19 and stuck to its forecast that the economy would see its biggest contraction in over two decades in 2020.
Governor Lee Ju-yeol also reiterated the central bank would purchase about 5 trillion won ($4.37 billion) worth of treasury bonds until the end of 2020 to soak up the record 167 trillion won debt sales planned for this year.
“We don’t have plans to increase the outright purchase of treasury bonds for now, but we will remain flexible on that depending on market situation,” Lee said in a press conference.
The decision to hold fire comes as Seoul’s median home prices have risen more than 50% in the past three years.
Lee said on Wednesday “household debt growth is increasing for a third straight quarter, an issue policymakers are concerned about.”
Separately, Kim Yong-beom, South Korea’s vice finance minister, said the government was ready to deploy additional measures to curb household debt. President Moon Jae-in has tightened mortgage rules since 2017 and introduced tax penalties to discourage debt binging and home buying.
Asia’s fourth largest economy plunged into recession in the second quarter, but ample monetary easing and 277 trillion won of fiscal stimulus has helped soften the blow from the coronavirus pandemic.
While recent manufacturing and jobs data have pointed to a tentative recovery, Lee said the economy was on track to meet the BOK’s forecast for a 1.3% contraction this year, which would be the biggest since the Asian financial crisis in 1998.
A rise in coronavirus cases saw South Korea impose restrictions on onsite dining and leisure facilities in August but these were eased this month even though small clusters of infections continue to emerge.
“Unless the third quarter growth worsens significantly, I don’t see another rate cut coming,” said Paik Yoon-min, fixed-income analyst at Kyobo Securities.
South Korean exports rose for the first time in seven months in September as major trading partners eased lockdowns but analysts worry the coronavirus resurgence in the United States and Europe could hurt export demand in coming months.
Meanwhile, Hyundai Motor Group heir took over from his father after 20 years in waiting. The group appointed Euisun Chung as group chairman on Wednesday, cementing his succession from his octogenarian father in a move likely to give impetus to the world’s fifth-largest automaker’s push into electric vehicles and flying cars.
In the first generational handover at the South Korean automobile giant in 20 years, Chung, 49, said he hoped to lead change at South Korea’s second-biggest conglomerate as it battles to stay ahead of the pack in a time of rapid technological innovation in the global auto industry.
“Carrying on their bold and innovative legacies, I feel privileged, yet also a sense of great responsibility for opening a new chapter of Hyundai Motor Group,” Chung said in his inauguration speech to employees.
Chung identified autonomous driving, electrification, hydrogen fuel cell, robotics and Urban Air Mobility (UAM) - industry jargon for flying cars - as his initiatives for the future.
Hyundai Motor shares were trading up 0.3% after rising as much as 2.5% after the appointment, while the wider market was down 0.6%. Kia Motors and Hyundai Mobis fell 1.6% and 1.1%, respectively. Hyundai Motor Group said Chung had been promoted to chairman from executive vice chairman, replacing his father, Mong-Koo Chung, who was made honorary chairman.
Key affiliates of Hyundai Motor Group, including Hyundai Motor, endorsed his inauguration unanimously.
The appointment makes Chung the latest third-generation leader to take over one of South Korea’s family-led conglomerates, which have been credited with lifting the war-stricken country out of poverty since the 1950s.
His father took the wheels of the group in 2000 and transformed the company, once mocked for poor vehicle quality, into the world’s No.5 automaker.
The 82-year-old has been stepping back from frontline operations in recent years, and gave up his board seat in Hyundai Motor earlier this year.
Euisun Chung has played an increasingly visible leadership role since September 2018 when he was promoted to executive vice chairman.
Hyundai Motor Group invested $1.6 billion in a self-driving technology joint venture with US Aptiv, forged a partnership with Uber on electric air taxis and invested in ride-hailing firm Grab.
In July Chung set a goal to win more than 10% of the global market for battery EVs by 2025.
Legacy automakers with similar ambitions face a growing threat from Tesla Inc, which has become the most valuable automaker. Hyundai recently said it plans to recall its top-selling EVs because of battery fire risks.
Euisun Chung does not have a major stake in Hyundai Mobis , an affiliate seen as key to control of the group, and is expected to renew the push for ownership restructuring to cement his influence after a previous attempt in 2018 met shareholder opposition.
Reuters
