[2026 Parliamentary Audit] Shin Hyun-song: "Rising Seoul Metro Area Home Prices Raise Major Financial Imbalance Concerns... Defaults in Vulnerable Sectors Remain a Risk"

BOK: Domestic and overseas long-term rates may move in tandem if rates in major economies continue to rise
Further upward pressure on domestic market rates; borrowing costs for households and businesses could rise further

"Concerns about financial imbalances are significant amid rising housing prices in the Seoul metropolitan area and growing household debt. The possibility of defaults in vulnerable sectors also remains a potential risk factor."

Bank of Korea Governor Shin Hyunsong strikes the gavel at a plenary meeting of the Monetary Policy Board held at the Bank of Korea in Jung-gu, Seoul, on July 16. Photo by the Joint Press Corps.

Bank of Korea (BOK) Governor Shin Hyun-song made the remarks on October 12 during a parliamentary audit by the National Assembly's Finance and Economy Planning Committee at the BOK in Jung District, Seoul. He said that "from a financial stability perspective, the domestic financial system is generally stable, underpinned by the resilience of financial institutions and the country's ability to meet external payments," but added that concerns persisted over rising home prices, particularly in Seoul and the surrounding metropolitan area, and the accompanying increase in household debt.

According to a report on the BOK's current operations submitted to the National Assembly, housing prices in the Seoul metropolitan area have continued to rise sharply, especially for low- and mid-priced homes, as expectations of further price gains have strengthened. The Consumer Sentiment Index (CSI) for Seoul housing price expectations fell from 130 in January to 97 in March, then gradually rose to 134 in August.

Apartment prices in Seoul have also continued to rise sharply in outlying areas, even as prices in the three Gangnam districts (Gangnam, Seocho and Songpa) have declined since August. In the first week of September, Seoul apartment prices rose 0.20% from the previous week, equivalent to an annualized increase of 10% to 15%. The BOK said that, given the high short-term uncertainty surrounding housing market supply and demand and income conditions, it is necessary to closely monitor market conditions and maintain a consistent policy stance to avoid fueling expectations of further housing price increases.

Key prices in the financial and foreign exchange markets have recently shown high volatility. Governor Shin noted that "Treasury bond yields rose considerably due to rising international oil prices amid ongoing tensions in the Middle East, stronger expectations of interest rate hikes in major economies, and increases in their government bond yields." The BOK said the domestic impact of rising interest rates in major economies remains limited for now. However, if long-term interest rates in those economies continue to rise, domestic and overseas long-term rates could move in tandem, putting further upward pressure on domestic market rates and raising concerns that borrowing rates for households and businesses could rise by more. It also said that a stronger global risk-averse sentiment could increase stock price volatility, alongside concerns about slower global AI investment and valuation pressures.

Governor Shin said stock prices had undergone a sharp correction, particularly in the semiconductor sector, before partially rebounding, and had since fluctuated in response to developments in the Middle East and the outlook for global AI investment. He noted that the won-dollar exchange rate had fallen considerably, supported by solid economic fundamentals despite external uncertainty, and had generally remained stable since.

He said strong economic growth is expected to continue for the time being. "Despite instability in the Middle East, our economy grew faster than expected, driven by favorable conditions in the semiconductor industry," Governor Shin said. "Exports and investment are expected to continue growing strongly, while the recovery in consumption gradually broadens, supported by improving income conditions, allowing the economy to maintain solid growth." He also expected inflation to remain above the target level of 2.0% for a considerable time, as accumulated cost pressures continue to pass through and demand-side pressures gradually increase.

Governor Shin said, "We raised the benchmark interest rate at two consecutive meetings in July and August, taking into account the importance of preventing inflation from spreading through preemptive action and the need to remain mindful of financial stability risks." He added, "Going forward, we plan to determine the timing and pace of any further rate hikes while closely monitoring inflation, economic activity and financial stability."

Meanwhile, the BOK revamped its Bank Intermediated Lending Support Facility to strengthen support for small and medium-sized enterprises located outside the Seoul metropolitan area and complement its interest rate policy. Round-the-clock operation of the foreign exchange market also began in July to improve access to South Korea's foreign exchange and capital markets. The BOK's won international settlement network, which began pilot operations in September, is scheduled to launch officially in January 2027.

Governor Shin stressed that the BOK is "working to establish a stable and efficient digital currency ecosystem in response to accelerating digital transformation," adding that "as part of these efforts, we plan to proceed without disruption with Phase 2 of Project Hangang, including real transactions and a pilot program for government fund disbursements."

This content was produced with the assistance of AI translation services.