South Korea's finance minister emphasises demand recovery over rising household debt

South Korea's Finance Minister Choi Sang-mok said that in the short term, the policy priority was not more on rising household debt but more focused on taming slowing domestic demand.

"As the deputy prime minister for economic affairs, I think the recovery of domestic demand is a little more important in the short term," said Choi, as he answered a question about policy priorities at a discussion forum.

The minister said that he expected the Bank of Korea to make a wise decision after the US Federal Reserve's recent interest rate cut.

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The US central bank last week opened an expected string of interest rate cuts with a more-than-expected half-percentage-point reduction that Federal Reserve Chair Jerome Powell said was part of policymakers' efforts to show they can preserve a low unemployment rate given the recent easing of inflation.

The Bank of Korea kept interest rates steady at 3.50 per cent last month, the highest since late 2008, as board members were fearful of accelerating house prices and debt for households regardless of easing inflation and slowing domestic demand.

South Korea's house prices accelerated in August, with prices in the capital, Seoul, rising at the fastest rate in more than 4-1/2 years, even after a government policy package to boost supply in the real estate market.

Choi said efforts to calm the housing market will continue through sufficient supply, and new measures to stabilise construction firms' input costs will be announced soon.

South Korea's economic growth will be at a level around mid-2 per cent in 2024 and above its growth potential, Choi said.

Economic growth will be driven by robust exports, according to Choi, while the recovery of domestic demand was comparatively sluggish.