President Yoon Suk-yeol of South Korea told Reuters that the country's government and central bank should focus more on managing potential financial instability as the money market struggles with a sharp selloff due to rising interest rates and a downturn in the housing market.

 

When asked if it is time for the Bank of Korea to ease monetary tightening during a larger interview at his office on Monday, Yoon responded in the negative, "There are increasing opinions that inflation has passed its peak and it's time to slow down the speed and reduce the breadth of the rate hikes. However we must still continue to closely monitor any possible financial instability."

Yoon's remarks came as the BOK indicated last week that the extraordinary string of policy tightening in Asia's fourth-largest economy to combat inflation may be coming to an end.

 

One of the worst meltdowns in Asia has occurred in South Korea's money market, particularly at the short end of the bill curve, as investors fled in the aftermath of rising interest rates and a wider decline in the real estate market.

 

According to a recent BOK poll, the country's residents are among the most indebted in the world, and some of them are having trouble making their mortgage payments as rates have reached a decade-high in the mid-4% range.

The highest household debt-to-GDP ratio among the 35 major economies tracked by the Institute of International Finance was recorded in South Korea in the second quarter, at 102.2%.

 

Yoon said, "We will keep our budget as it is till next year," adding that the government would try to pursue an effective fiscal strategy by reducing wasteful spending and giving priority to expenditures where it was needed.

 

According to Yoon's initial budget plan for 2023, which was unveiled in August, the nation will slash spending for the first time in 13 years in order to help the BOK reduce inflationary pressures.