BOK rules out further tightening amid 'temporary' volatility

Bank of Korea (BOK) Senior Deputy Governor Ryoo Sang-dai ruled out further monetary tightening, saying recent volatility in the financial market was only temporary.

Bank of Korea (BOK) Senior Deputy Gov. Ryoo Sang-dai speaks in a press conference at the BOK office in central Seoul on Wednesday. [JOINT PRESS CORPS]

Bank of Korea (BOK) Senior Deputy Governor Ryoo Sang-dai ruled out further monetary tightening, saying recent volatility in the financial market was only temporary.

“The volatility on Wednesday was caused by a sudden reflection of accumulated issues over the long [Chuseok harvest] holiday,” Ryoo told reporters on Thursday. “The second reason was the possibility of prolonged high interest rates in the United States. The volatility grew due to the combined reasons, and we are reviewing the situation.”

Financial markets recently experienced a rise in volatility as yields on government bonds soared. The yield on 30-year U.S. treasuries hit a 16-year high on Tuesday, while the yield on Korea's 30-year treasuries hit 4.199 percent on Wednesday to reach its highest level this year, which was renewed on Thursday. The the Kospi flopped 2.41 percent on Wednesday.

However, Ryoo added that the volatility is temporary.

“Whether the market will be able to embrace the possibility of prolonged high interest rates in the United States needs to be seen,” he said.

Ryoo said he expects household debt to decline gradually.

“Considering the economic conditions and the premise that new expectations surrounding the housing market do not arise, there’s a higher chance household debt will fall due to the borrowing cost,” Ryoo said.

According to last month's BOK data, household debt extended by banks soared at its fastest pace in 25 months in August, rising 6.9 trillion won ($5.11 billion) from a month earlier, led by housing-related loans.

Korea’s household debt-to-GDP ratio reached 108.12 percent last year, up from 92 percent in 2017, according to recent data by the International Monetary Fund.

Financial regulators in September rolled out several measures to tame household debt, implementing stricter rules on mortgage lending.

The BOK’s Monetary Policy Board is scheduled for its next meeting on Oct. 19.

BY JIN MIN-JI [jin.minji@joongang.co.kr]