BOK head expresses concerns over rapid growth of local stock market

Bank of Korea (BOK) Gov. Lee Ju-yeol warned the local stock market has been growing at a dangerously fast pace and expressed concerns about those borrowing to invest during an online press briefing held Friday.

Bank of Korea Gov. Lee Ju-yeol speaks during an online press briefing held Friday at the bank in Jung District, central Seoul. [BANK OF KOREA]

Bank of Korea (BOK) Gov. Lee Ju-yeol warned the local stock market has been growing at a dangerously fast pace and expressed concerns about those borrowing to invest during an online press briefing held Friday.

"If the growth is too fast, [the stock market] can be shaken up even with the slightest impact," Lee said. "It's not easy to tell at this point whether the recent hike in stock prices is a bubble or not, but the speed of growth is definitely very fast compared to in the past."

Lee said that while stock prices have been shooting up based on the belief that global governments will maintain an expansionary monetary policy, which has been the main source of abundant liquidity, there could always be unexpected risks such as geopolitical risks and uncertainties related to the spread of the coronavirus and vaccines.

"When stock prices are adjusted due to these unexpected triggers, investors could suffer from losses they cannot bear, especially for those that borrowed to invest," Lee said.

While households took out loans from Korean banks at a record pace last year, with debt increasing by a record amount of over 100 trillion won ($91.1 billion) annually, Lee said the central bank is carefully monitoring the situation as the household debt situation was already quite severe prior to the Covid-19 pandemic.

"Last year, household debt largely grew, however, we don't expect households' insolvency to get serious at the moment based on our assessments," Lee said. "Interest rate is low and average debt maturity has been extended. Households' debt service ratio has actually gone lower and the debt default rate has also declined."

Lee added that since the household debt problem can't be managed by the central bank alone, it is discussing with the country's financial watchdog and the government about how to better manage it.

On whether the BOK has plans to change its stance from monetary easing in the near future, Lee said "it is still too early to consider a change in stance" considering the sluggish recovery of the real economy affected by social distancing campaigns and a contraction in household consumption.

While top politicians in the ruling party are floating the idea of another round of Covid-19 relief checks for all households, the fourth, ahead of the major by-elections in April, Lee said he personally thinks "relief funds should be given to selected households considering resource effectiveness."

As for Korea's economic growth this year, BOK forecast gross domestic product growth to be around 3 percent as the economy is likely to recover gradually led by exports and investment in facilities, especially in the IT sector.

On Friday, the BOK froze the base interest rate at 0.5 percent, a record low, considering the remaining economic uncertainties from Covid-19 in a unanimous decision by the bank's monetary policy board.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]