Korea’s Rhee Bank watches for warning signs of long-term monetary policy tightening Reuters

© Reuters. The Bank of Korea logo is seen in Seoul, South Korea, November 30, 2017. REUTERS/Kim Hong-Ji/File Photo

SEOUL (Reuters) – Bank of Korea Governor Rhee Chang-yong said on Monday that recent market concerns about the financially troubled builder were a “warning signal” about the financial risks of prolonged monetary tightening.

While managing inflation remains a top priority, finding the right policy mix is ​​important as South Korea nears the end of its long struggle to bring consumer prices under control, Rhee said in a New Year’s message.

He cited doubts about the integrity of commercial real estate loans in major countries and a mid-sized local developer being forced to restructure its heavy debt load as warning signs for the economy.

“There is a need to prepare thoroughly for the possibility of financial instability that may occur if the tightening policy continues,” he said.

“We need to pay particular attention to ensure that credit risks do not build up around what is a weak link in our economy.”

Rhee met with Finance Minister Choi Sang-mok and financial regulators on Friday and pledged to provide liquidity support after Taeyoung Engineering & Construction’s announcement to restructure its debt caused jitters in the market.

The country’s 16th largest builder has 4.58 trillion won ($3.6 billion) in debt, including project financing loans.

The central bank’s 2% inflation target remains in place, although external and domestic factors require more fine-tuning to determine the optimal trajectory for interest rates and how long to maintain monetary tightening, Rhee said.

Year-on-year consumer inflation in South Korea eased for a second month to 3.2% in December, supporting the BOK’s inflation view that price pressures will gradually ease to a target of 2% by the end of 2024.

President Yoon Suk Yeol said on Monday that price pressures are expected to ease further in 2024 and the government will take measures to ensure that the more financially vulnerable, including small business owners, see the benefits of lower inflation.