Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
The BoK requested for policy actions on household debt and policymakers' (mainly Financial Services Commission) responses in the form of comprehensive measures suggest that the top priority for economic policy has shifted from economic growth in H1 to financial stability in H2, which should reduce the likelihood of further monetary easing at least in H2 this year.
An impressive pickup in household debt growth was clearly one of the key concerns for policymakers, which finally led to the measures that should effectively tighten financial conditions.
Societe Generale notes some key points of these household debt management measures. These measures are clearly negative for domestic demand growth, as they are targeted to slow household credit growth and housing market recovery.
- 1) To encourage fixed-rate, amortized mortgages by mandatory amortization over a certain limit on loan-to-value and debt-to-income ratio, fee discounts on fixed-rate amortized mortgages, and limiting the grace period (interest-only) up to one year. The government's target is to raise the ratio of fixed-rate amortized mortgages from 33% currently to 40% for fixed-rate mortgages and 45% for amortized mortgages until 2017.
- 2) To strengthen financial institutions' credit monitoring process by using only the "official" income verifications and by applying higher interest rates (potentialinterest rate hikes) in debt-to-income calculations on floating-rate mortgages.
- 3) To strengthen supervision over non-bank financial institutions' household loans, especially by tightening the loan-to-value ratio on non-residential mortgages.
- 4) To strengthen banks' capital requirements and increase the capital of the Korea Housing Finance Corporation. To test the introduction of non-recourse mortgages.
