South Korean central bankers expected to hike interest rates at November meeting
In an effort to cool the overheated property market, South Korea’s Central Bank is expected to hike interest rates by 25 basis points to 1.75% at a board meeting in Seoul today.
The Bank has flagged this interest rate rise to curb soaring levels of household debt, which have reached $1.15 trillion. In spite of this, Finance Minister Hong Nam-ki argues that, given sluggish 2% growth in September, interest rates should remain low to spur economic activity.
Hong’s position reflects anxiety in President Moon Jae-in’s administration that South Korea’s conglomerate-led (chaebols), government-backed economic model is not fit-for-purpose. Moon was elected on promises to reform the scandal-ridden chaebols, but as slow growth persists, expect the already reluctant parliament to increasingly resist major reforms to conglomerates, which account for 80% of GDP.
Therefore, further deregulation is likely as Seoul focuses on small-to-medium businesses and start-ups (SME) to supercharge growth. The government has faced an SME backlash all year over minimum wage hikes, with small businesses blaming them for low growth. This backlash will test the president’s nerve in steering towards an SME-led model or retreating to the safety of the chaebols. Moon may ultimately attempt to do both.
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