Additional Interest Rate Hikes Expected Two to Three Times This Year
Household Interest Burden Likely to Increase Further
[Asia Economy Reporters Song Hwajeong and Mun Jewon] The end of the chip money era is no exception in Korea. The Bank of Korea, which took the lead in raising interest rates last month, is widely expected to raise rates two or three more times this year.
In the financial market, there are concerns that if interest rates rise sharply amid a surge in household debt, borrowers' interest burdens will increase further. Also, as interest rates rise, a phenomenon of 'reverse money move' is occurring, where funds flow into safe assets.
Due to low interest rates and overheating in the real estate market, household debt exceeded 1,800 trillion won last year. According to the Bank of Korea, if the base interest rate rises by 0.25 percentage points, household interest burdens are estimated to increase by 3.2 trillion won. If it rises by 0.5 percentage points, it increases to 6.4 trillion won. Considering that the base rate rose three times by a total of 0.75 percentage points from August last year to January, the annual interest burden on households has increased by 9.6 trillion won. When converted to the annual interest burden per person, it rises from 2,896,000 won to 3,380,000 won, an increase of 484,000 won.
Park Chunsung, a research fellow at the Korea Institute of Finance, said, "In a situation where household debt has accumulated unprecedentedly, interest rate hikes can be a significant burden for borrowers," adding, "Since interest rate hikes may proceed faster than expected, it is necessary to manage risks at the borrower level and control fiscal spending during the interest rate rise period to prevent the real economy from becoming excessively sluggish."
Due to concerns over early tightening and interest rate hikes in the U.S., asset markets such as stocks, real estate, and virtual assets have frozen, leading to a pronounced reverse money move phenomenon where funds flow into safe assets. As of the end of last month, time deposits at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?amounted to 666.7769 trillion won, an increase of 11.841 trillion won compared to the end of December last year. The won-denominated deposits at the five major banks as of the end of January also increased by 34.1929 trillion won to 1,788.552 trillion won compared to the end of December last year. Meanwhile, household loan balances decreased by 1.3634 trillion won during the same period.
A phenomenon of fund immobilization in money market funds (MMF) and securities firms' comprehensive asset management accounts (CMA) balances is also emerging. According to the Korea Financial Investment Association, the MMF balance, which represents standby funds invested in short-term financial products, reached 158 trillion won at the end of last month, increasing by more than 22 trillion won compared to the end of last year. The CMA balance was 69 trillion won at the end of last month, up 4 trillion won in two months. On the other hand, the stock market credit transaction loan balance was 21.3384 trillion won as of the 3rd, down 1.7502 trillion won compared to the end of last year.
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