Source: XINHUA | 2013-2-5 | ONLINE EDITION
SEOUL, Feb. 5 (Xinhua) -- Bank of Korea, South Korea's central bank, needs to take expansionary monetary policy to prevent housing market disruption from causing financial and economic instabilities, a local think tank said Tuesday.
"Expansionary monetary policy will help enhance financial and economic stabilities under the economic downturn in connection with the housing market slump," Song In-ho, a research fellow at the state-run Korea Development Institute, said in a report.
The central bank needs to take expansionary monetary policy to boost confidence on economic recovery and keep consumer confidence from weakening when property prices fall, he said, urging the central bank to assess the intrinsic value of real estates.
According to the report, a 1 percentage point increase in the benchmark interest rate would drag property prices down by 2.8 percentage points. Other things being equal, a 1 percentage point rise in property prices would lift consumer spending by 0.03 percentage points.
When economic downturn comes in connection with the housing market slump, the monetary policy will have a pivotal role in boosting consumer confidence and expectations for economic recovery, the report showed.
The central bank froze the benchmark seven-day repurchase rate at 2.75 percent in January after cutting the rate by 25 basis points in July and October last year.
Expectations for additional rate cuts spread after Governor Kim Choong-soo of the bank said the monetary policy will be effective when it comes with the fiscal policy. His comment was in line with speculation that the new administration under President-elect Park Geun-hye would unveil new stimulus measures after taking office in late February.