South Korea central bank says rate cut cycle could boost household debt, risky investments

SEOUL: South Korea’s central bank warned that the pace of growth of household debt in Asia’s fourth-largest economy could accelerate in the current interest rate easing cycle and urged the government to impose macroprudential measures to curb growth.

“Easing of financial conditions is expected to accelerate household debt growth, but macroprudential measures could help curb the pace,” the Bank of Korea said in a financial stability report published on Tuesday.

A strong majority of economists in a November poll forecast the BOK would cut its base rate by another 25 basis points to 2.75% in February to boost activity in the economy.

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The BOK cut rates for a second meeting in a row on Nov. 28, marking the first back-to-back reductions since early 2009, as the economy barely avoided a technical recession in the last quarter.

The BOK also warned that an increase in risk-taking behaviour could be seen among businesses and retail investors with lower interest rates, as more people are willing to put their money in cryptocurrencies and stocks listed overseas.

The bank vowed to deploy market stabilising measures on foreign exchange markets should volatility increase sharply.