The financial regulator stressed the need to supply enough funds to local businesses in a "timely" manner, noting a recent US rate cut may increase market volatility.

Kim So-young, deputy chief of the Financial Services Commission, also insisted that there still remained many uncertainties stemming from the upcoming US presidential election and increasing tensions in the Middle East, as well as widely expected rate reductions in major economies.

"The speed of rate reductions in major economies still remains unclear, but the direction of global monetary policies has been decided following the rate cut by the US Federal Reserve," Kim said in a meeting with a group of local financial experts.

"We must look out for the possibility of increased liquidity leading to a rise in household debts and housing prices when and if the time comes for the local rates to be cut," he was quoted as telling the meeting.

Household loans extended by local banks jumped at the highest rate in over three years in August.

Kim said household loans are already showing signs of slowing and that the government will "swiftly take additional measures if necessary."

The FSC vice chief stressed a need to "ensure efficient distribution of funds" instead, noting the recent US rate cut and a possibly ensuing rate reduction by South Korea's own central bank may lead to a sharp rise in market liquidity, leading to yet another spike in household debts and real estate prices.

"There may be many reasons for major global economies to reduce rates, but in terms of the real economy, they may be aimed at revitalizing the economy by boosting investment and consumption," Kim said.

"To this end, ensuring efficient distribution of funds so that fresh investments can be made in productive areas in a timely manner is more important," he added, according to the FSC. (Yonhap)