September 14, 2018 / 5:19 AM / 2 years ago

UPDATE 2-S.Korean officials defend policy as housing, jobs crises sap president's popularity

* BOK official says monetary policy cannot solely target stabilising home prices

* Opposition parties denounce house price move as “tax bomb” (Adds context)

SEOUL, Sept 14 (Reuters) - South Korea’s central bank and finance ministry defended their respective policies on Friday as they came under fire for failing to tackle soaring home prices and the worst unemployment figures since the global financial crisis.

Officials from the Bank of Korea and the government are pressed for media comment almost daily on a property-buying frenzy that has put homes out of reach for many young South Koreans already squeezed by the cut-throat job market.

South Korean President Moon Jae-in has faced a barrage of criticism over the failure of his policies intended to create well-paid jobs and curb property speculation.

On Friday, Senior Deputy Governor Yoon Myun-shik said monetary policy decisions “cannot solely target stabilising home prices” when asked whether low-interest rates had stoked a housing bubble in main regions across the nation.

Yoon also said monetary policy decisions will be made in a “neutral and independent” fashion.

Yoon’s remarks came after Prime Minister Lee Nak-yeon implicitly advocated further monetary policy tightening on Thursday, telling a parliamentary session “it’s time to seriously discuss” raising interest rates.

Bond yields rose immediately after Lee’s comments, as market participants saw them as the government putting pressure on the central bank to raise interest rates to support its policy measures to curb soaring home prices.

The independence of central bank board members is guaranteed by law, but they often face government pressure to adjust interest rates.

Yoon told reporters on Friday that while the central bank was worried about surging home prices, its monetary policy board also needed to ensure financial stability and economic growth.

Eight central bank interest rate cuts between 2012 and 2016 are often blamed for record household debt and soaring home prices.

Self-styled “jobs president” Moon Jae-in’s approval rating has plummeted to near its lowest since inauguration as each month’s worsening jobs report and news of sky-high housing costs triggered a public backlash.

A Gallup Korea poll published on Thursday showed Moon’s approval rating inched up slightly to 50 percent after hitting the record low of 49 percent a week earlier. The president’s office did not immediately respond to requests for comment.

Many Koreans believe the government’s 16 percent increase in the minimum wage this year - the biggest jump in nearly two decades - has discouraged businesses from hiring.

But Finance Minister Kim Dong-yeon pushed back in a radio interview on Friday saying “its not right to think that higher wage floors or the government’s income-led growth policies are failing the economy”.

The unemployment rate rose to an eight-year high of 4.2 percent in August from 3.8 percent in July as the number of unemployed rose by 134,000 people from a year earlier.

This was the labour market’s worst performance since January 2010, when the economy was still reeling from the global financial crisis and 10,000 jobs were lost.

Youth unemployment reached 10 percent in August, hovering around record highs.

South Korea laid out new plans on Thursday to curb soaring home prices, imposing tougher taxes on property ownership to rein in some owners of expensive homes blamed for stoking a speculative housing bubble in prominent areas across the country.

Opposition parties denounced the move as a “tax bomb”.

“The government failed to unveil a housing policy that can balance demand and supply. It is dealing with housing policy with stop-gap measures,” Sohn Hak-kyu, leader of the minor opposition Bareunmirae Party, said at a meeting with senior party members, Yonhap News reported.

The average apartment price in Seoul exceeded 600 million won ($533,000) for the first time in 2017, and has surged despite President Moon’s capital gains tax hikes and tougher mortgage rules announced in August 2017.

Apartment prices in Seoul gained 6.9 percent this year, logging the fastest price jump since 2006 and far outperforming 1.2 percent nationwide gain so far this year, data from KB Kookmin Bank showed. (Reporting by Seung-gyu Lim, Hayoung Choi, Cynthia Kim Editing by Eric Meijer)

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