Bank of Korea blames interest rates for rental frauds

Finance

Published: 24 Apr. 2023, 18:43

Bank of Korea blames interest rates for rental frauds

A renewed Bank of Korea headquarters, center, in central Seoul on Monday. [BANK OF KOREA]

The Bank of Korea Governor Rhee Chang-yong said the central bank’s monetary policy is partly responsible for the recent spate of housing fraud.

“You can't see the high interest rate isn’t a reason for the jeonse problems, since they were caused by the drop in housing price,” the central banker told reporters at the Bank of Korea’s renewed office in central Seoul on Monday.

Jeonse are lump-sum deposit for long-term rents at the heart of high-profile recent frauds.

A number of tenants have fallen victims to jeonse fraud with property prices falling steeply since last year and the rapid increase in the policy rate withering housing demand, forcing some indebted landlords to auction off their units.

“We raised the interest rate because there would be bigger challenges if inflation isn’t tamed. Adjusting and preparing for the unpredictable in that process to prevent anxiety is a major task of ours.”

The central bank raised the policy rate to 3.50 percent in January from 0.50 percent in July 2021.

Rhee said the collapse of the Silicon Valley Bank in the United States in March was also a side effects that followed the Fed’s steep increase of the federal funds rate.

The central banker said there were expectations that the Federal Reserve and the European Central Bank would raise interest rates during his visit to Washington DC last week to attend the G20 Finance Ministers and Central Bank Governors Meeting.

“There was an agreement that inflation had reached the peak globally, but individual counties regarded their peak interest rates differently.”

Rhee, who celebrates his first anniversary in office, said, “Prices rose higher than expected, and there were problems with foreign exchange and capital markets for some time. Describing the situation as a crisis would be excessive, but there are uncertainties inside and outside of Korea.”

He added that he hopes to change preconceptions of central bankers.

Central bankers are perceived to be dovish and controlled by the government if they cooperate, he said.

“That may have been true historically, but I hope Bank of Korea employees break away from that frame.”

Rhee was meeting reporters to celebrate the return of the Bank of Korea office to its renovated headquarters.

The Bank of Korea temporarily relocated its office in 2017 to refurbish its old headquarters.

The construction was scheduled for completion in 2020, but work was delayed due to the Covid-19 pandemic.

BY JIN MIN-JI [jin.minji@joongang.co.kr]