South Korea central bank says housing policies won't constrain monetary policy

SEOUL, Dec 18 (Reuters) - South Korea’s central bank said on Wednesday that recent government measures to curb surging home prices will not necessarily constrain monetary policy, and the bank would maintain its accommodative approach.

“The (two) recent rate cuts would have definitely fuelled housing demand but, given the economic and financial stability conditions, the cuts were needed then to focus on boosting growth and inflation,” Bank of Korea Governor Lee Ju-yeol told a news conference, commenting on the bank’s biannual review of its inflation-targeting framework on Tuesday.

The Seoul government on Monday announced new property market regulations, including tighter mortgage guidelines, to rein speculators and rein in galloping property prices.

It also cited a policy of low interest rates as a factor in the overheated housing market.

When asked about criticism of the bank’s inflation outlook, Lee said forecasts “have been far out of line,” but that the gap was mostly due to the government’s strengthened welfare policy.

While the bank anticipates only a modest rise in inflation, it estimates that annual consumer price growth in 2019 will likely come in at 0.4%. It forecasts inflation to gradually rise to 1.0% in 2020 and 1.3% in 2021 - well below its 2% target.

The downgraded figures come even after the bank cut the benchmark interest rate twice this year to 1.25%, matching a record-low rate last seen until late 2017.

At their last meeting of the year last month, Bank of Korea board members voted 6-1 to keep rates unchanged, but the minutes released on Tuesday showed more than one board member saw the need for further easing to stimulate the economy.

“The bank has multiple (times) stressed that it will maintain its accommodative monetary policy and that there is still room for further easing,” Lee said.

He added that it would take economic and financial stability conditions and policy effects all into consideration when deciding whether to adjust the degree of monetary policy accommodation.

Markets are betting on more policy easing next year because of the lacklustre outlook for the economy, Asia’s fourth-largest, in the face of persisting global uncertainties. (Reporting by Joori Roh Editing by Mark Heinrich)