South Korea imposed new lending controls yesterday to cool its housing market, but the move failed to dent expectations that the central bank will raise interest rates soon to avert a property price bubble.
Upbeat exports and consumer spending data for September added fuel to rate rise speculation, hitting government bonds and lifting the won, with some players not ruling out a move even as soon today when the Bank of Korea holds its policy review.
Bonds cut their losses slightly after the Financial Supervisory Service said that it would limit mortgage lending by insurance firms and other non-banking institutions in Seoul and the surrounding areas.
But traders doubted lending controls alone would succeed in stopping a relentless house price rise, which the central bank has said could force it to raise interest rates, and stuck to their view that rates would go up before the year-end. Property prices in Seoul have risen 20 per cent since the start of the year.
‘It seems the government is trying to come up with every possible policy available to rein in the property market boom and delay the timing of the interest rate increase, but I don’t think the central bank will give up its intention to raise rates,’ said Jung Sung-min, a fixed-income analyst at Eugene Futures.
The regulator’s announcement coincided with Bank of Korea’s report that bank mortgage lending to households dipped last month, after similar restrictions were implemented for banks.
However, the financial supervisor said non-bank lending surged in September.
The government, concerned that monetary tightening may tip the recovering economy back into a downturn, has repeatedly argued it was too early to withdraw economic stimulus and that it should be done in coordination with other major economies.
Analysts, however, believe the central bank will stand its ground, emboldened by recent strong economic data and the fact that Australia has already raised rates this week as the first Group of 20 nation to do so after slashing rates in the face of the worst global downturn in generations.
South Korea’s exports to China rose in September from a year earlier for the first time since September 2008, while department store sales and credit card use hit multi-month highs, government data showed.
The financial regulatory agency said in a statement it would impose a 50 per cent debt-to-income ratio ceiling on mortgage lending in the capital and surrounding areas, in which about a half of the country’s total population live.
The ratio is the percentage of money spent on servicing a mortgage loan contract out of the borrower’s income. — Reuters
Source : Business Times – 9 Oct 2009
Lush Dream Home 