BOK Analyzing Correlation between Benchmark Rate Cut and Household Debts

It has been found that the Bank of Korea recently established an econometric model for the analysis of correlations between a key interest rate cut and household debts. It seems that this is to have a better grasp of issues related to household debts, which are soaring these days. 

In the first quarter of this year, the total debts of South Korean households amounted to 1.2237 quadrillion won (US$1.064trillion), increasing by more than 125 trillion won (US$108.6 billion) in just one year. As of the end of July this year, the household debt balance in the domestic banking sector totaled 673 trillion won (US$585 billion), 33 trillion won (US$28.6 billion) more than the total at the end of the first month of this year.

The amount of increase jumped from two trillion won or so to at least six trillion won (US$5.21 billion) between early this year and May. At the end of last month, immediately after a key interest rate cut, the residential mortgage loans rose to 506.6 trillion won (US$440.52 billion), increasing by 5.8 trillion won (US$5.04 billion) in a month and reaching the largest increment since the beginning of this year.

Still, the central bank of South Korea is reluctant to show its econometric model to the outside. “Effects the base interest rate has on the national economic growth rate and consumer prices tend to show relatively stable movements and thus data related to such effects are open to the public,” the bank explained, adding, “However, it is not appropriate to disclose its effects on household debts because they are very complex and highly affected by both external and internal conditions.”