(ATTN: RECASTS headline, lead; UPDATES with more details in paras 2-8, 17, 18)
By Kim Soo-yeon
SEOUL, Sept. 30 (Yonhap) -- South Korea's finance minister, the top central banker and financial regulators agreed Thursday to operate the fiscal, monetary and financial policies in harmony to prop up the economic recovery and ease financial imbalances.
At a policy coordination meeting, they also decided to preemptively respond to external economic risks, such as the Federal Reserve's tapering issue, and make efforts to curb the fast growth of household debt.
The meeting, presided over by Finance Minister Hong Nam-ki, was held to discuss household debt and other economic issues.
"We've agreed to seek 'a policy mix' of macroeconomics, fiscal and financial policies to support the economic recovery and ease financial imbalances," showed a joint statement by the finance ministry, the Bank of Korea (BOK) and the Financial Services Commission (FSC).
BOK Gov. Lee Ju-yeol, Koh Seung-beom, new head of the financial regulator FSC, and Jeong Eun-bo, new chief of the Financial Supervisory Service, attended the meeting.
It was the first time since February for the four heads of the fiscal, monetary and financial authorities to hold a meeting to discuss macroeconomic issues.
The participants voiced concerns about the fast growth of household debt.
Hong said the government will seek to rein in household debt as much as possible but also plans to explore ways for people to take loans within their ability to repay debt.
"We will discuss how to manage household debt on the consensus households' indebtedness, which has grown fast amid ample liquidity in the process of tackling the pandemic, could pose a risk to the economy," he said at the start of the meeting.
The FSC is reviewing ways to further tighten rules on home-backed loans in a bid to curb household debt. It plans to unveil additional measures in October.
Since July, the FSC has applied stricter lending calculations for mortgage loans, called the debt service ratio (DSR). The DRS measures how much a borrower has to pay in principal and interest payments in proportion to his or her yearly income.
In 2020, household debt grew 7.9 percent on-year. The regulator aims to bring the annual increase to below 6 percent this year and below 5 percent next year.
Household credit reached a record high of 1,805.9 trillion won (US$1.54 trillion) in June, up 41.2 trillion won from three months earlier, according to central bank data.
The growth of household debt has shown no signs of letting up as more people have taken bank loans to buy homes in anticipation of higher prices despite a series of government restrictions. Demand for unsecured loans also remains high amid a boom in stock investment.
In August, the BOK raised the benchmark interest rate by a quarter percentage point to 0.75 percent from a record low of 0.5 percent, marking the first rate hike since May last year.
The central bank said it will gradually adjust its monetary easing as it seeks to meet its inflation target of 2 percent for this year amid signs of a robust economic recovery from the COVID-19 pandemic. A rate hike could increase debt-servicing burdens of households.
There are concerns the fiscal and monetary policies may be in discord as the government plans to continue to implement expansionary fiscal policy to prop up economic growth, while the BOK is set to further tighten the policy rate.
The government said it is rather a "policy mix" under which the country supports vulnerable people with the fiscal policy, while the monetary policy focuses on easing financial imbalances.
The finance minister said the country also needs to keep close tabs on growing external risks, such as uncertainty about the Federal Reserve's tapering of bond-buying programs as major economies seek to unravel their accommodative policy stance.
"Concerns about inflation are growing amid a hike in oil and other raw material prices," Hong said. "Latent risks have also partly materialized as illustrated in a debt problem by Chinese property developer Evergrande Group."
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