Is it possible to reduce interest rates? Bank of Korea’s deepening concerns [Everything Rally

[Seoul = Newsis] Reporter Nam Joo-hyeon = The Bank of Korea’s worries about interest rates are deepening due to the phenomenon of safe and risky assets rising simultaneously. In this situation, if the Bank of Korea lowers the base interest rate, there is a risk that asset prices will soar further and a bubble may form. In particular, in the case of Korea, it is not easy to reduce the rate because the recently stagnant real estate market could be shaken again.

According to the New York Mercantile Exchange on the 17th, the April gold price closed at $2,188.60 per ounce on the 12th, hitting an all-time high since gold futures trading began in 1997. The spot price of gold in Korea exceeded 90,000 won. Meanwhile, the virtual currency Bitcoin surpassed 100 million won on the 11th, and KOSPI also surpassed the 2,700 mark for the first time in two years on the 14th.

In the money market, it is common for funds to flow into either safe or risky assets while flowing out of the other. For this reason, it is considered unusual for gold, a representative safe asset, and virtual currency or stock market, which are representative risky assets, to soar at the same time. The market interprets this as a result of expectations for an interest rate cut.

The Bank of Korea’s interest rate calculation method is also becoming more complicated in that the ‘Everything Rally’, in which all asset values ​​soar, originated from the market’s expectation of an interest rate cut. Until now, prices, growth, and monetary policies of major global countries have mainly played a role in determining interest rates, but recently, asset values ​​have emerged as a major variable.

The excessive surge in asset values ​​is an element that adds persuasiveness to the prudent argument for an interest rate cut. In particular, in the case of Korea, there are high concerns that if expectations of rising asset prices spread, it will stimulate the stagnant real estate market. This is because it can lead to an increase in household loans and cause a contraction in consumption.

Hwang Se-woon, a senior researcher at the Korea Capital Research Institute, said, “A cut in interest rates is likely to lead to overheating of asset prices,” adding, “Especially in a situation where the pace of increase in household debt has slowed, the Bank of Korea has no choice but to be cautious about lowering interest rates due to concerns about real estate stimulus and a surge in household loans.” He said.

Even within the Bank of Korea, which has mentioned inflation, growth, household debt, and interest rate differences with major global countries as major interest rate determining factors, it has recently begun to directly mention housing prices, which are asset values.

According to the minutes of the February Monetary Policy Committee meeting, one member said, “High household loans are a major burden on the domestic economy,” and “It will be a key variable, along with housing prices, in determining the timing of monetary easing of the base interest rate in the future.” Another committee member expressed concern, saying, “Expectations of premature easing could stimulate purchasing sentiment in sluggish housing prices and act as a factor in further increasing private debt.”

Kim Jeong-sik, a professor of economics at Yonsei University, said, “If the interest rate is lowered, there is room to borrow and invest in real estate again as the interest burden decreases.” He added, “As the increase in household debt reduces consumption and leads to an economic recession, the financial authorities must actively take action to solve the problem.” “It’s a task,” he said.