Latent Bomb
According to the Bank of Korea and Justice Party lawmaker Park Won-seok, who is a member of the Strategy & Finance Committee of the National Assembly, Korean households’ additional interest burden amounts to 1.9 trillion won on the assumption that the central bank raises the key rate by 0.25 percentage points and the increment is reflected in commercial banks’ loan rates as it is. The amount rises to 3.9 trillion won and 7.7 trillion won if the loan rate increment reaches 0.5 percentage points and one percentage point, respectively.
In fact, there was already a similar analysis last year. Specifically, it was estimated that a 0.25 percentage point increase in the key rate would lead to a 1.7 trillion won increase in interest on loans a year nationwide, and the figures could reach one percentage point and 6.8 trillion won in some cases.
With regard to this point, nominee for Deputy Prime Minister and Minister of Strategy & Finance Yoo Il-ho said before his confirmation hearing that the government would keep trying to improve the qualitative side of the household debt issue with the debts of the top 40 percent households in terms of income accounting for 70 percent of the total liabilities.
In the meantime, Korea’s base rate, which is 1.5 percent a year as of now, is expected to be raised within this year with the Fed having raised its rate last month. The central bank of Korea is likely to follow suit from the second half of this year if the U.S. raises its base rate over and over during the course of this year.