■ Appearance: Joo Won, Head of Economic Research Department, Hyundai Research Institute
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[앵커]
The Bank of Korea decided to raise the baby step and interest rate by 0.25%p at the last Monetary Policy Committee of this year. This is the first time that the Bank of Korea has raised interest rates six times in a row since its launch. The economic outlook for next year has also been lowered to the 1% level, raising concerns regarding an economic recession. Let’s talk to an expert. Joo Won, the head of the economic research department at the Hyundai Research Institute, came out. welcome.
[주원]
hello?
[앵커]
The Bank of Korea raised interest rates once more, but the pace was narrowed. I will listen to the background first.
[이창용 / 한국은행 총재 : 5% 수준의 높은 물가 오름세가 당분간 지속할 것으로 전망되는 만큼 물가 안정을 위한 정책 대응을 이어나갈 필요가 있다고 판단했습니다. 인상 폭과 관련해서는 앞으로 경기 둔화 폭이 확대될 것으로 예상되는 가운데 외환 부문의 리스크가 완화되고 단기금융시장에서의 자금 조달이 제약되고 있는 점 등을 종합적으로 고려해볼 때 0.25%p가 적절하다고 판단했습니다. 이 결정은 금통위원 전원 일치였습니다.]
[앵커]
Is it a big step or a baby step? There were many prospects that I was at a crossroads, but in the end I narrowed my stride. what background is it?
[주원]
Our inflation rate is still in the upper 5% range. So, interest rates have to be raised, and since the US Federal Reserve FOMC remains in December, there is a high possibility of raising at least 0.5 there.
Then, it is correct for us to raise it, but as the BOK governor mentioned, the recent crisis in the corporate capital market and the interest burden on household debt have increased considerably following the Legoland crisis. I raise it when I think regarding that, but the surrounding conditions of the financial market and the exchange rate are stable at 1300 won, so considering that part, everyone agrees at 0.25, and the MPs seem to have decided that way.
[앵커]
Apparently, we still have to focus on catching prices. This is the trend, but have prices stopped going high now or what?
[주원]
No, our statistics are now up to the consumer price increase rate for October, but it is in the late 5% range. So, it’s still high, but if you look at the US consumer price inflation rate, it peaked at 9.1%, stayed in the 8% range for a long time, and then the most recent one fell to the 7% range, so the US price index now leads by regarding 1 to 2 months compared to other countries.
If so, it seems that we will also see a decrease in the inflation rate. However, if you look at the drop in US prices by sector, it’s because the price of raw materials has dropped. Therefore, it is difficult to see the effect of monetary policy. Then, we probably know it next Friday, and November’s consumer prices are coming out, and I think it’s probably in the early 5% range or, at best, in the upper 4% range.
[앵커]
Since President Lee Chang-yong was asked such a question, he said that even if the inflation rate drops to the 4% level this time, it is not a signal to be relieved of.
[주원]
First of all, the Bank of Korea’s most closely watched indicator is inflation. not the growth rate. Of course, since the first goal of the goal of establishing the Bank of Korea is to control prices and inflation, of course, as the BOK governor, even if it comes out in the 4% range, it will not give a positive signal to the market. However, in the market, it is 4%, then next year it will be 3%. 2% in summer. That’s how it works, in the market. I think that will probably be reflected in the bond market first on the market side.
[앵커]
Anyway, since the inflation target is in the 2% range, there is still a long way to go.
[주원]
It is clear that there is a long way to go.
[앵커]
You can see it that way. Then, there is a cycle in the interest rate hike trend. Is the end in sight now? Or how?
[주원]
The end is in sight. Of course, all countries follow the Fed rate. Although the US Fed has one more left in December, 0.5. Most views raise 0.5 and it becomes 4.5%. That’s the topmost, or even if you raise it from there, it’s regarding 0.5. So if you upload one or two more times, it’s over, because I have a lot of thoughts like that…
[앵커]
Then, how far do you personally look at the highest level?
[주원]
I’m at 4.75 or 4.5 when prices stabilize soon, raising it in December. I thought that maybe that would be enough, so we will follow that. If the US stops raising interest rates, there is no reason for us to raise interest rates. I think so.
[앵커]
If you look at the current atmosphere of the US Federal Reserve, there was talk of adjusting the pace in the meeting minutes.
[주원]
The directors of the US Federal Reserve and the governors of the 12 regional and federal banks decide interest rates. To be exact, 5 out of 12 federal bank districts rotate every year. New York, one of the five, always goes in as vice president, four change, and James Blood, the St. Louis Fed President, has always been a hawk.
I was talking regarding a 7% US policy rate. So he used to be a hawk, but this person also changed. It changed to around 5%. And the four extension bank governors who decide interest rates now are almost hawks, but they will change next year. So when the market changes…
[앵커]
Doesn’t that make you more hawkish?
[주원]
It might be, but these people were so strong. Other local bank governors who did not enter the FOMC also spoke, but they did not speak as strongly as these people. So I think that the atmosphere will change next year.
[앵커]
Then, at what level do you think the decision to raise interest rates in the US next month will come?
[주원]
They are gathered at 0.5. If you look at the probability you see in the market right now, almost 90% of them are all gathered at 0.5, so you can see that 0.5 is probably certain.
[앵커]
Since we took the baby step this time, the gap with the US is regarding 0.75 percentage points, but even if the US only decides to take the big step, the difference will increase by as much as 1 point. Are you okay, like that?
[주원]
In the past, the maximum interest rate inverted and what happened had gone up to 1.5. Even then, it wasn’t such a big problem. So, I don’t think it’s likely that the exchange rate market will be so unstable or like this if it’s around 1.25.
[앵커]
How far can you last?
[주원]
Up to 1.5, we don’t think there’s any problem.
[앵커]
President Lee Chang-yong said that he would not mechanically follow the US interest rate hike. What is the story behind?
[주원]
While Governor Lee Chang-yong talked regarding the independence of the Bank of Korea’s monetary policy a few months ago, independence of monetary policy originally meant, for example, the administration’s side. In Korea, when the economy is bad, the administration wants to lower interest rates, but the Bank of Korea thinks regarding prices and is affected by them, this is independence. I made a similar statement that its independence is not independent of its independence from the US Fed.
But that remark is realistically correct, but is that what the BOK governor will say? People have been very critical of this. We talked like that this time, and interest rates are almost at the top, so now we have to adjust monetary policy according to the situation of each country. I think that at such a timing, Lee Chang-yong, the president of the Bank of Korea, made such a statement.
[앵커]
Considering various circumstances, it is until the first half of next year that the Bank of Korea raises interest rates in Korea. Is this correct?
[주원]
That’s the most probable. It is difficult to upload in the second half of the year, and if you narrow it down a little more, it will be around the beginning of next year.
[앵커]
around March?
[주원]
It might be January, it might be March, yes.
[앵커]
The Bank of Korea also announced its economic growth forecast for next year. 1.7%. I lowered it from 2.1 to 1.7. What do you think of this lowered background?
[주원]
We usually announce next year’s economic growth rate forecasts around this time of year next month, and there are KDI, the Bank of Korea, and private research institutes. And foreign institutions also make announcements, and usually the Bank of Korea’s forecast for economic growth is slightly higher than that of foreign institutions.
Some state-run organizations viewed it positively, but this time, the OECD is 1.8, but the Bank of Korea is 1.7. A more pessimistic view. So, there are different interpretations. First of all, the Bank of Korea is also quite concerned regarding the economic situation next year, and with an expanded interpretation, it seems that the pace of interest rate hikes should now be lowered. And this time, it was announced together with the decision to raise 0.25 during the Monetary Policy Committee. 0.25 raised, not 0.5. The basis for that is, like this, with 1.7…
[앵커]
It’s a decision that reflects concerns regarding the economic downturn, I guess.
[주원]
So I think the Bank of Korea gave such a signal that it not only looks at prices but also looks at economic growth.
[앵커]
If it is a 1.7% growth rate, how should we read that figure? If the score is 1 point, the economy is in recession. Can you see it this way?
[주원]
The other day, KDI also said that when it announced 1.8, but it seems that KDI’s claim is that the potential growth rate and average growth rate of Korea are not so recession if the average growth rate is regarding 2%, but the financial crisis was quite serious in 2009 and 2020 Except for Corona, there has never been a 1% economic growth rate in Korea.
So, the 1% face-to-face government announces that, but it is quite serious. It seems clear that the economy is going down quite noticeably. When I think regarding that, I think it’s difficult to say that it’s at a decent level like the position of the Bank of Korea or KDI.
[앵커]
You analyzed it as a dangerous signal that might lead to an economic recession. Which of the factors is the most important? Is it an export issue or what?
[주원]
It’s both now. So, when Korea experienced an economic downturn or recession, if exports failed, domestic demand supported it. And if domestic demand was strange, or if there was a situation like this, exports supported it. But this time, exports have already declined, and the growth rate is negative in October.
And November will also surge, but I think the minus will come out significantly. Then, once the export economy goes negative, it will last for several months. So, at least until the first half of next year, I think it will be quite difficult. Then domestic demand has to endure, but when the economy is bad, the government releases finances and lowers interest rates, giving companies and households room to find vitality. It’s impossible to do that now.
Given that interest rates are high and there are still concerns regarding inflation, it is not known when consumption or investment will fall into a recession. So the stagnation coming in from the outside, the stagnation from within. Complex recession, that’s quite a concern, so I personally think that the possibility of a 1% range is quite high.
[앵커]
First of all, it’s bleak news, but it’s the end of the year. But when do you see the point of recovery? There was also a prospect that a recovery signal might come by the next year or so.
[주원]
More than 100%. In 2024, the next year, there is a clear signal of recovery, but this time, the OECD growth rate forecast is strange, and it continues to lower the growth rate in 2023 or 2024, Korea. So it doesn’t seem like that. What is clear is that the economic situation will be better in 2024 than next year in 2023.
[앵커]
Why is that?
[주원]
There is also a rebound effect. And the world economy follows the US economy, and the US economy will be difficult next year, but since most institutions predict that it will enter the recovery phase from 2024, it is correct that 2024 will be good. It’s at the bottom of the game. Some people are a bit optimistic regarding it, and some think it will be 2023, next summer.
Summer will be the moment when raw materials and recent global risk factors calm down. And by then, the Fed and other major central banks will change the direction of interest rate policy. There are many reasons to change. If the game goes bad, we can change it.
Therefore, the economy will change by next summer at the earliest or by the end of next year at the latest. I’m not saying the game is getting better. I think the turning point will probably be prepared.
[앵커]
Looking back at the interest rate, it has risen by 2 percentage points in 10 months. It was 1.25% in January, but it rose to 3.25%. Because of this, the mortgage loan goes up to 8%, and it goes up to 9% within the year. There is even talk like this, so the burden of those who have to pay the interest increases unspeakably, I have a lot of worries.
[주원]
According to the analysis by the Bank of Korea, an analysis came out saying that interest rates on household loans in Korea have increased by regarding 36 trillion won over the past year or so due to an increase in interest rates. . In a way, it is a calculation within the institutional financial system, and in fact, there are quite a few cases where ordinary people raise funds outside of it, so I think the interest burden will be considerable.
However, just because there is an interest burden, the household side becomes insolvent, and bankruptcies are rampant there, and this has a considerable time lag.
[앵커]
So can the followingmath come later?
[주원]
Yes. But when is the later? Recently, when I took out a loan in the financial sector, I actually made a loan with tighter regulations. You still haven’t touched the DSR ratio. So, when I think regarding that, I don’t think this year will be the time when household debt insolvency really has a serious impact on the market, and I think it’s time to pass the year.
[앵커]
Let’s talk real estate for a moment. I will lower the official price, the government. It seems that it is a measure to solve the real estate stagnation in a situation where the transaction cliff continues. Will it work?
[주원]
If the official land price falls, there is a tendency for the final tax or taxes to decrease.
[앵커]
Does a lot of taxes have an impact?
[주원]
Yes. Dropping the official land price now does not mean that trading will be activated. It’s a tax on those who own it.
[앵커]
So, will the transaction tax be lowered as well?
[주원]
It won’t be until the transaction tax. Although the transaction tax is also affected by the publicly announced land price, it is actually greatly affected by the market price. However, in order for transactions in the real estate market to be activated, the DSR mentioned earlier must be released.
It seems that the transaction can be activated only when the size of debt loans once morest one’s income is released. So, the government’s real estate market activation policy that has been released so far is still tied up. There are signs of falling interest rates, and I think that the transaction in the real estate market will be activated only when the DSR regulation is lifted.
[앵커]
How much tax actually decreases when the official price is returned to regarding 2 years ago, is this enough to feel it? How much do you see?
[주원]
The price was quite high two years ago. Of course, it has gone up a lot lately. I think you can feel it. Those who have a large or expensive house will feel it, but I also think that there will not be such a big difference at the level of ordinary people.
[앵커]
Finally, it is said that it is a transaction cliff and that the decline in house prices continues. There is no more difficult problem for the government than solving the real estate problem. Which policies do you see as the most important?
[주원]
Is the government’s intention to reduce real estate prices or to stimulate real estate market transactions? This is important, but I don’t think it intends to decrease prices. Of course, the Minister of Land, Infrastructure and Transport intended to reduce prices a few months ago, but in reality, when real estate prices fall, there are many such dangerous parts.
It can be transferred to the financial system. So, a policy that can activate real estate transactions. It’s probably difficult to say that market interest rates will drop in the first half of next year, but the consensus of the market that that is the top will be gathered. At that time, I think that if the DSR regulations are released step by step by region, transactions in the real estate market can be activated.
[앵커]
I’ll wrap it up here. Until now, Joo Won was the head of the economic research department at the Hyundai Research Institute. Thank you.
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