The Bank of Korea’s Monetary Policy Committee froze the base rate at 3.50% on the 25th. This is the third interest rate freeze in a row following February and April this year.
Some people interpret the interest rate freeze as a good meaning, but this interest rate freeze means that the economic situation in Korea is not that good.
The rate of increase in consumer prices in April was 3.7%, down 0.5 percentage points (p) from the previous month (4.2%), recording the 3% level for the first time in 14 months since February last year .
Inflation expectations in May also fell by 0.2%p MoM to 3.5%, the lowest level in a year.
In April, the producer price index fell by 0.1%, falling for the first time in four months. But the economy is in decline.
The Bank of Korea presented this year’s economic growth rate at 1.4%, 0.2% lower than three months ago (1.6%), through its ‘revised economic outlook’. This is the fifth consecutive downward revision since the first presentation of the growth rate this year. The growth rate for next year was also revised down from 2.4% to 2.3%.
In addition, the current account balance, which can be said to be Korea’s fundamental physical strength, recorded a deficit of 4.46 billion dollars in the first quarter of this year. This is the first “quarterly deficit” in 11 years since 2012.
Exports fell 16.1% from the 1st to the 20th of this month compared to the same period last year, raising the possibility of an eighth consecutive month of export decline and a 15th consecutive month of trade deficit .
The contraction of the IT economy, including semiconductors, is deepening, and the impact of the resumption of economic activities in China is negligible.
Failure to adjust the interest rate implies that the economic situation is negative, so it is a situation that cannot be enjoyed.
Rising debt is also one of the reasons for choosing to freeze interest rates.
As of the first quarter of this year, a survey of household debt-to-GDP ratios in 34 countries around the world showed that Korea had the highest at 102.2%.
Causes of debt are overheating investment in assets such as real estate and management difficulties due to corona.
Investors who bought houses with variable mortgages during the zero interest rate period are now paying interest in the 6-7% range, meaning their debt has increased.
In the end, we must not forget that the decision of the Bank of Korea affects the lives of ordinary people in the dilemma of uploading or not uploading. It is important to prepare supplementary measures to prepare for appropriate choices and side effects.
