The Bank of Korea says it “pursues price stability”. Oh, really? Only if the sense of “stability” can be broadened to mean consumer price inflation stably outside its 2-4 per cent target range, as it has been every month this year. The BoK has offered just three quarter-point interest rate rises over that period, to 3.25 per cent. The Bank of England, which faced with almost exactly the same deviation from the same target has not raised at all. But the BoK still looks lethargic. On Thursday it held again, as almost every pundit expected it would, even as it noted rising headline CPI (to 4.4 per cent in June), “demand-side pressures,” and a general expectation of continuing high prices in the coming months.

Targets, schmargets. In its statement, the monetary policy committee justified its caution with some generic observations about emerging-market strength and developed-market weakness. But the BoK does not have to deal with a serious growth problem; Korea’s gross domestic product is expected to grow at 4.5 per cent this year.

Instead, the unspoken truth is that Korea is tolerating high inflation – agricultural and livestock product prices are particularly rampant – because of its Achilles heel: households’ enormous debt burden, equivalent to about 150 per cent of disposable income at the end of last year. As much of that debt is subject to floating rates, the fear is that higher payments would hurt consumption. But Koreans are not taking advantage of low rates to deleverage. On the contrary, credit from banks to households rose by KrW3,400bn ($3.2bn) in June, up from KrW2,500bn a year ago and KrW3,300bn in May. And as Moody’s notes, banks are increasingly using collateral value, not borrowers’ cash flows, as the basis for lending.

The BoK’s statement closed with some hawkish language. But it is surely time to swap hawkish talk for hawkish actions.

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