[Asia Economy Reporter Kwak Min-jae] An analysis has emerged that if the Bank of Korea implements a 'big step' (raising the base interest rate by 0.50 percentage points (p)) this month, household interest burdens will increase to 54 trillion won. The interest burden on self-employed households, considered a vulnerable link in household loans, will rise to 17.5 trillion won.
On the 6th, Rep. Kim Hoe-jae of the Democratic Party analyzed microdata from the Statistics Korea Household Financial Welfare Survey and projected that if South Korea's base interest rate rises from the current 2.50% to 3.00%, an increase of 0.50%p, household interest burdens will reach 54.2063 trillion won. Among this, the interest on household debt for self-employed households is estimated to reach 17.5263 trillion won.
This figure is estimated on the assumption that loan interest rates rise by the same amount as the base rate increase and that the proportion of variable interest rates accounts for 74.2% of total household loans. Self-employed households are defined as those where the household head's occupational status is self-employed.
At the end of March 2021, when the base interest rate was at an all-time low of 0.5%, the household debt interest amount was approximately 39.6228 trillion won.
Since then, global monetary tightening led by the United States has accelerated, and South Korea has responded accordingly, raising the base interest rate to the current 2.50%. The financial sector expects the Bank of Korea to likely choose a big step, raising the base rate by 0.50%p on the 12th.
Accordingly, if South Korea's base interest rate rises to 3.00%, within less than two years, the household debt interest burden will increase by 14.5835 trillion won. The interest burden on self-employed households will increase by 4.7152 trillion won from 12.8111 trillion won as of the end of March 2021.
Rep. Kim Hoe-jae said, "If interest burdens increase, consumption will decrease, leading to an economic contraction," and added, "Fiscal policy must act as a breakwater against the crisis in people's lives." He further stated, "Funds used for tax cuts for the wealthy should be redirected to strengthen support for vulnerable groups and the self-employed."
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