Bank of Korea Governor Lee Chang-yong said on Monday that recent market concerns about a financially troubled builder are a “warning sign” of financial risks brought about by long-term monetary tightening.
Bank of Korea Governor Lee Chang-yong said on Monday that recent market concerns about a financially troubled builder are a “warning sign” of financial risks brought about by long-term monetary tightening.
In his New Year address, Lee Chang-young said that although controlling inflation remains a top priority, as South Korea's long struggle to control consumer prices comes to an end, it is also important to find the right policy mix.
He pointed out that questions about the integrity of commercial real estate loans in major countries and the forced restructuring of a medium-sized local developer to restructure its heavy debt burden are all warning signs of the economy.
“As austerity continues, it is necessary to be fully prepared for possible financial instability,” he said. “We need to pay special attention to ensure that credit risk does not grow around weak points in our economy.”
On Friday, Lee Chang-yong met with Finance Minister Choi Sang-mok and financial regulators after South Korea's sixteenth largest construction company, Taeyoung Engineering & Construction Co. (Taeyoung Engineering & Construction Co.) announced a debt restructuring that caused market unease, and promised liquidity support. According to information, Taeyoung E&C has 4.58 trillion won (3.6 billion US dollars) of debt, including project financing loans.
Lee Chang-yong said that the central bank's 2% inflation target is still valid, although external and domestic factors require more fine-tuning to determine the best interest rate path and the time to maintain a tight monetary policy.
In December of last year, South Korea's annual consumer inflation rate slowed to 3.2% for the second month in a row, which supports the Bank of Korea's view on the inflation path, that is, price pressure will gradually ease to the target level of 2% by the end of 2024.
South Korean President Yoon Seok-yeol said on Monday that price pressure is expected to ease further in 2024, and the government will take steps to ensure that economically disadvantaged groups, including small business owners, see the benefits of falling inflation.