S.Korea c.bank says housing impact underestimated
SEOUL, May 26 (Reuters) - Housing market troubles in Japan and the United States over the last two decades show that central banks have underestimated the sector in setting monetary policy, South Korea's central bank chief said on Monday.
"The boom and bust of the Japanese housing sector in the late eighties and early nineties, and the recent subprime mortgage crisis in the U.S., suggest that the macroeconomic implications of the housing sector may have been underestimated," Bank of Korea Governor Lee Seong-tae told an international conference.
"Despite the importance of these issues, they are not sufficiently reflected in more sophisticated models," he said in his opening speech at the conference sponsored by the South Korean central bank.
His comments came after data from a local bank showed on May 3 that housing prices across South Korea rose at their highest rate in 15 months in April from March, despite expectations for a slowing domestic economy in the face of weakening global demand.
Housing prices in South Korea rose a combined 20 percent from 2005-2007 after a moderate 2.1 percent decline in 2004, the data from Kookmin Bank 060000.KS shows.
Rallying housing prices were among the main factors behind the central bank's seven interest rate increases between October 2005 and August 2007.
The Bank of Korea has held its policy rate steady at 5.0 percent for the past nine months, and its recent hawkish comments on rising inflation suggest it will not lower the rate at its June 12 policy meeting despite political pressure to stimulate the local economy with a cut.
A senior finance ministry official said last week it would probably cut its 2008 economic growth target of 6 percent when it releases economic policy direction in July, due to a deepening global slowdown compounded by higher oil prices.
The ministry's existing target, set after growth-oriented President Lee Myung-bak won December's election in a landslide, was already well above the central bank's forecast of 4.7 percent and most private forecasts.
South Korea's economy, Asia's fourth-largest, expanded 5.0 percent in 2007 after a 5.1 percent rise in 2006. (Reporting by Yoo Choonsik; editing by Jonathan Hopfner)
