On Wednesday, South Korea’s Finance Minister Choi Sang-mok announced that the main focus for the government’s policy is centered on addressing the deceleration of domestic demand, rather than the escalation of household debt.
Choi emphasized the short-term importance of the recovery of domestic demand and expressed his anticipation for the Bank of Korea to make a judicious decision following a recent interest rate reduction by the U.S. Federal Reserve.
Last week, the Federal Reserve implemented its first interest rate reduction since the outbreak of the Covid pandemic, involving a 0.5 percentage point reduction in benchmark rates, aiming to prevent a slowdown in the labor market.
On the other hand, the Bank of Korea kept its interest rate steady at 3.50%, the highest since late 2008, with its board members showing concerns on rising house prices and household debt, despite the backdrop of diminishing inflation and decelerating domestic demand.
During August, there was an acceleration in house prices in South Korea, notably in the capital city of Seoul, marking the most rapid increase in over four and a half years. This surge occurred despite a government policy initiative aimed at enhancing supply within the real estate market.
The minister noted that the government would continue to calm the housing price down through adequate supply and would announce new initiatives to stabilize input costs for construction companies in the near future.
He added that the country’s economic growth is anticipated to be at around mid-2% in 2024 and higher than its growth potential, with exports being the key sector while the recovery of domestic demand remains relatively lackluster.
