Korea Central Bank Eyes Further Hike Amid Inflation
Nominal GDP growth hit 21.9% in H1, the highest since the early 1990s, prompting the Bank of Korea to consider further tightening.
Nominal gross domestic product in South Korea expanded by 21.9% in the first half of the year. This marks the strongest nominal growth rate recorded since the early 1990s. The figure far outpaced the 3.8% increase in real GDP. The Bank of Korea cited this surge as a primary factor in its current policy review.
The central bank raised its benchmark interest rate from 2.50% to 3.00% in July and August. Deputy Governor Park Jong-woo described these moves as front-loaded actions. The goal was to curb inflation before price pressures intensified. Officials will now assess the impact of these hikes before the late October decision.
Inflation Trends Remain Elevated
Core inflation rose to 3.4% in August. This represents a 0.8 percentage point increase from the previous month. Kwak Beop-jun, head of the economic trends team, noted that higher international oil prices continue to drive consumer costs. The conflict in the Middle East remains a significant contributor to these price increases.
Improved income conditions are also boosting demand. The central bank expects this combination of higher prices and spending to sustain inflationary pressure. GN markets/inflation reports highlight the risk of a persistent gap between supply and demand. The bank warns that price stability remains the primary objective of current monetary measures.
Housing and Debt Risks Persist
Home prices in the Seoul metropolitan area continue to rise. This trend persists despite higher interest rates and lending restrictions. Household borrowing has expanded, with mortgage debt seeing the largest growth. The central bank warns that higher purchasing power may further fuel the housing market.
Uncertainty surrounding household lending remains high. The bank called on the government to maintain a consistent policy approach. It emphasized the need for coordinated action to manage debt levels. Financial stability is now a key focus alongside price controls.
Market Concentration Drives Volatility
Stock market gains are increasingly concentrated in semiconductor companies. Investment in leveraged exchange-traded funds has risen. Borrowing to buy shares has also increased, adding to market volatility. The bank notes that some leveraged positions have recently been reduced.
Concerns remain about the sustainability of global artificial intelligence investment. Changes in long-term interest rates could impact sentiment. The bank warns that shifts in global conditions may again increase volatility. South Korean semiconductor stocks remain particularly exposed to these external factors.
