1.25% ‘raise’ in the base rate… “Even 1.5% cannot be seen as austerity.”
Bank bond yields expected to rise on possible further hikes
“Households should respond by reducing the proportion of floating interest rates”
Photo = Getty Images Bank.
#. Park Ji-yeon (pseudonym), who recently extended a negative account, was surprised. This is because the loan interest rate was 4.88%, nearly 2 percentage points higher than last year’s 2.91%. He said, “I went to the branch of the bank because I couldn’t extend the non-face-to-face extension, but at the window, I explained that I had no choice but to raise the base rate like this because of the base rate.” and complained
As the base rate is raised to 1.25%, borrowers’ interest burden is expected to increase. The base interest rate has risen by 0.75 percentage points in five months since August last year, and there is a possibility that the base rate will rise further.
According to the financial industry on the 17th, the Monetary Policy Committee of the BOK raised the base interest rate from 1.0% to 1.25% on the 14th. As a result, the base interest rate returned to the pre-COVID-19 level for the first time in 22 months. As for the reasons for the decision to raise the base rate, the MPC suggested that growth should continue despite uncertainty about the novel coronavirus infection (COVID-19), steeper-than-expected inflation, and financial imbalances should be reduced.
In December of last year, the consumer price inflation rate was 3.7%. Last year, the annual consumer price inflation rate was 2.5%, the highest in ten years. This is significantly higher than the central bank’s inflation target (2%).
As interest rates rise in earnest, borrowers’ interest burden is expected to increase. According to the Bank of Korea, if the base rate is raised by 0.25 percentage points, households’ annual interest burden will increase by 2.9 trillion won.
The problem is that interest rates are expected to rise further. Shortly after announcing the base rate hike on the 14th, Bank of Korea Governor Lee Ju-yeol said, “Considering the real economic situation even now, (interest rate) is still at an accommodative level. said.
As the possibility of a further increase in the base rate increases, the loan interest rate is expected to rise further. Loan interest rates follow index interest rates such as bank bonds, in that the interest rates on bank bonds reflect the base rate hike in advance. According to the Financial Investment Association, as of the 13th, the one-year (AAA, unguaranteed) interest rate on bank bonds stood at 1.790% and the five-year (AAA, no guarantee) interest rate at 2.410% as of the 13th. Compared to a year ago, this is an increase of 0.9 percentage points.
Mortgage loan interest rates are expected to soar to the 6% range. As of the 14th, KB Kookmin, Shinhan, Hana, and Woori’s four major banks offered variable interest rates of 3.57 to 5.07 percent. In the case of the five-year fixed-type hybrid product, it was calculated as 3.75~5.51%. The interest rate on credit loans is expected to rise to the 5% range. The interest rates on credit loans at the four major banks ranged from 3.39 to 4.73%, an increase of more than 2 percentage points considering that the interest rate was in the 2% range a year ago.
Demand for fixed-rate loan products such as qualifying loans is expected to increase further for the time being. Governor Lee also advised that a fixed rate should be selected rather than a variable rate. Governor Lee said, “The market interest rate is rising as inflation accelerates in the future, so households need to make efforts. There is,” he emphasized.
Koh Seung-beom, chairman of the Financial Services Commission, also said on the 14th, “Economic actors, such as households and businesses, should break away from the perception that low interest rates are constant and prepare for a rising interest rate.” He said, “In preparation for an increase in the repayment burden of the private sector, unnecessary debt should be reduced through ‘the practice of borrowing within the repayment range and repaying it in small portions’. will,” he emphasized.
Eunbit Koh, reporter at Hankyung.com silverlight@hankyung.com
